Can Collection Agency Sue for a Debt?

Kathleen Esposito
Find out how collection agencies work.
Find out how collection agencies work.

The short answer to the question, can collection agency sue for a debt, is yes. However, the real answer is a bit more complicated. While a collection agency can sue a consumer, the truth is that it is not that likely to happen. What is more likely is that an agency that is working on behalf of a creditor, for example a credit card issuer, will suggest that the company sue the individual. This is because it is the company that owns the debt, not the collection agency, that usually has the grounds to sue and win.

How Collection Agencies Work

The reason most collection agencies rarely sue consumers is because they do not own the debt they are trying to collect on. These companies instead work on commission. This means that when the agency gets the consumer to repay the company that hired it, it gets a portion of the funds that come in. However, there are some cases where the company will sell the debt to the collection agency outright, often when the debt is old and there is little chance of settling it. The agency will pay, say, 1 percent or 2 percent of the total amount owed and take over the account. The company is happy to be getting something instead of nothing at all and the agency takes a gamble on whether it will get more out of the consumer at some point.

When Can Collection Agency Sue for a Debt?

Can collection agency sue for a debt? - yes, just like any other American institution, a collection agency can sue for a debt at any time and for any reason. However, it doesn't make sense to do so unless the agency has a good chance of winning and a judge is willing to take the case. If not, the collection agency will waste a lot of money on legal fees for basically no good reason.

When Will Collection Agency Sue for a Debt?

There are two cases where a collection agency is likely to sue a consumer:

  • If the agency has purchased the debt from the creditor, the debt is fairly large (at least several thousand dollars) and the consumer has the means to repay in some fashion, such as cash on hand or in the form of assets, such as a home
  • If the consumer signs a written agreement on how he or she will repay a debt to the collection agency and then does not follow through on his or her obligations. If the collection agency wins a lawsuit against a consumer, it then has the right to garnish wages and go after a person's assets, which it cannot legally do before this happens.

Threatening To Sue

Some collection agencies will threaten to sue consumers to try to get them to repay their debts quicker even though they have no intention of doing so. However, this practice is illegal according to the Fair Debt Collection Practices Act, since it qualifies as harassment. In fact, if a consumer has a record of this type of contact, he or she can actually sue the collection agency for up to $1,000 in damages. Though threats are illegal, an agency is allowed to send a letter to a consumer stating that it has filed a lawsuit. This letter must be solely for the purpose of notifying the consumer and contain no requirements for behavior.

Preventing a Lawsuit

The best way to avoid a lawsuit is to be honest with the agency about your ability to repay the debt and not make any promises you can't keep. Also, start managing your debt when it is small; don't let it get out of control. If you're beyond that point already, consider credit counseling.

Can Collection Agency Sue for a Debt?