Can a Collection Agency Sue Me For a Debt Owed?
Question: "We have been getting phone calls from a collection agency about a store credit card they say we still owe money on. They call us almost every day, for the last two weeks or so. We disputed the balance of that card previously. I'm wondering what kind of legal authority these people have (the debt collectors). Can a collection agency sue you for the unpaid debts you owe?"
Yes, they can. The word "sue" simply means that one party is filing a lawsuit against another party. Suing should not be confused with actually winning a lawsuit. Filing a suit and winning a judgment are two very different things. It's an important distinction. Anybody can bring a lawsuit against somebody they feel has wronged them. That's the type of judicial system we have in the United States.
In the case of third-party debt collectors suing debtors, it just doesn't happen very often. That's because the outside collection agency is not the victim in a case of unpaid debt. The agency buys the debt (usually for pennies on the dollar), in the hopes of making a profit by collecting on it. This is how their business model works. Granted, it's not the most honorable profession in the world.
But the collector is not the victim in this kind of scenario. The original creditor is the victim. So the creditor would normally be the one bringing the lawsuit, if there was one.
In those occasions when a collection agency actually does sue a debtor, it's usually because the debtor agreed in writing to some kind of repayment plan, but then reneged on that agreement. In this case, the collector has become the victim of a broken agreement. So it's a different scenario entirely.
We will get back to the suing part in a moment. First, let's talk about how you got to this point. Here's what usually happens in these situations...
You stop making payments on a store credit card. So the original creditor (the store) sends you a notice of late payment. You still don't pay, for whatever reason. So the store sends you a warning letter that says they may turn the account over to a debt-collection agency, and that they will also report it to the credit-reporting bureaus. You still don't pay. So the creditor sends the account to a collection agency for further action. The agency calls you and urges you to make your payments. They explain how you are damaging your credit score (this part is true), and that you could end up getting sued for your debt (this part is a blatant threat, and is therefore illegal).
Does this scenario sound familiar? If it does, you're not alone. Though it's hard to find current statistics in this area, I would venture a guess that around 5% of Americans are behind on their bill payments. And with the current economic troubles we are having, this number will likely increase going forward.
For example, according to the Bureau of Labor Statistics, the debt collection industry could experience 23% growth between now and 2016. Business is booming for those folks! So would they really want to sue a consumer for a debt that might be smaller than their potential legal fees? Not usually.
Many consumers confronted by debt collectors complain that the agencies threaten them in various ways, harass them, insult them, etc. In 2007, the Federal Trade Commission (FTC) received nearly 71,000 consumer complaints about collection agencies -- far more than any other industry.
One of the common complaints is that the agency has threatened to sue the debtor for the debt they owe. And this brings us to one of the most commonly asked questions on this subject:
Can the Collection Agency Sue Me?
- Yes, from a purely legal perspective, a third-party collection agency can bring a lawsuit against you.
- But in most cases, it's the original creditor who would sue you over the debt you owed.
- While a collection agency could file a suit against you, they are not allowed to use it as a threat. Federal law forbids them from threatening you with a lawsuit or wage garnishment.
When I mention federal laws in this article, I'm referring to the Fair Debt Collection Practices Act (FDCPA). Among other things, this law regulates the actions of collection agencies. It's enforced by the Federal Trade Commission (FTC). Specifically, this law states that a "debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person."
And while we are speaking of the government, here is what various government sources have to say about this subject:
- "A collection agency can sue you in Superior Court. A collection agency may not sue in Small Claims Court." Source: Website of the California Attorney General
- "You could still be sued by the debt collector or your original creditor [after sending a letter requesting that they stop contacting you]." Source: FTC website
- "The debt collector can send negative information to the credit-reporting agencies, sue you in court, and garnish your wages or file a lien against your property once a judgment is issued by the court." Source: Consumer Affairs website for the Governor of Georgia
- "The collection agency must comply with your request but may sue you if it believes the debt is valid. If you are sued, you have the right to appear and defend yourself in court." Source: Colorado Attorney General's website
Unfortunately, there are a lot of ill-informed web publishers and bloggers who claim that a collection agency cannot sue you in court. This is what causes so much confusion on the subject. It also gives consumers a false sense of protection from legal action. The citations given above should answer this question once and for all. And this brings us to another common question among consumers:
Can I Sue the Collector?
Up to this point, we've been talking about a collection agency trying to sue a debtor for an unpaid debt. But what about the other way around? Are there cases where the consumer can sue the collector?
Yes. If you feel the actions of a collection agency are overly harassing and (more importantly) in direct violation of the FDCPA, then you can sue them in state or federal court.
Can I Go to Jail for Unpaid Debts?
So-called "debtor's prisons" were a common feature in the work of Charles Dickens. They played a central theme in several of his novels. (His father was sent to one of these prisons, which would influence the author later in life.) But times have changed.
In the United States, people with unpaid debts are not usually arrested for the outstanding debt alone. But they can certainly be sued by a creditor, subpoenaed by a court, and held accountable in other ways. So while the debt itself doesn't usually lead to jail time, incarceration is still a possibility. For instance, if a debtor fails to respond to a legal subpoena, he or she could certainly wind up in jail. The same goes for a person who fails to pay legal fees or satisfy a court-ordered payment plan.
Of course, the laws on this vary from state to state. According to a 2011 article in the Wall Street Journal: "More than a third of all U.S. states allow borrowers who can't or won't pay to be jailed." Other states forbid it. So you would be wise to research the laws for your particular state.
Disclaimer: This article should not be construed as legal counsel. The information above has been provided for educational purposes only. Laws vary from state. Please do not make any financial or legal decisions based solely on the information provided above. If you are being pursued by a collection agency, we encourage you to read through the Fair Debt Collections Practices Act (FDCPA). Consider seeking legal counsel from a professional.