If you owe money to a creditor whether it be the original creditor or a collection agency, the information contained here is important for you to know. We will answer many questions including, “Can a debt collector sue you?”
The Original Creditor Versus a Collection Agency
Typically, when you stop paying a creditor (the company the debt is owed to originally), that creditor will want to get that unpaid debt off their books. Unpaid debt from an accounting standpoint is a negative against the bottom line so it benefits the creditor to sell the account. These types of accounts are sold for a fraction of the balance owed to a collection agency or debt collector (a different term for the same type of company).
The original creditor benefits because they are paid for a portion of the debt owed by you. And they then can use the amount of the debt they weren’t paid as a write-off against their taxes. In other words, the unpaid debt is listed as an expense against their income on their tax return thus allowing them to pay less tax against their income for that year.
So, don’t feel too bad for your creditor.
The Rights of a Debt Collector or Collection Agency
Once this account is sold, the account's new owner has the right to collect the debt from you. However, they must follow consumer protection law when contacting you. Assuming the debt collector legally owns the account and follows the law, you now owe that debt collector for the full unpaid balance.
Can a Debt Collector Sue You?
The short answer is yes. However, each state has a statute of limitations for debt that is owed by consumers. This is a period of time in which a debt collector can sue you for the balance you owe. Once this time period has passed, they can no longer sue you. However, you still technically owe the money to the owner of the debt (debt collector).
To see the time period your state allows debt collectors to sue, click the link above. Note that there are specific types of debt and statute of limitation periods for each type in each state.
Let’s use an example. Consumers John & Mary Smith who live in Florida owe $5,000 to a credit card company. The last payment they made was January 1st, 2021. On April 1st the credit card company sold the debt to ABC Collection Agency. ABC Collection Agency now has the right to collect the balance owed on the credit card.
As you will see when you click the link above, credit card debt is categorized as an open-ended account. In Florida, the statute of limitations on open-ended accounts according to www.thebalance.com is 4 years. This means that in the 4-year period from the date of the last activity on the account such as a payment by you, the debt collector can sue you for the balance of the debt. After the 4 years have expired the debt is considered time-barred. In our example, John & Mary can be sued by the creditor of record (the collection agency) up until December 31st, 2024 (4 years).
What Happens After the Statute of Limitations Has Expired?
Once the time period stipulated by your state expires, the creditor or debt collector can no longer sue you. However, you technically still owe the debt. In some states, the debt collector can still contact you about the debt. In other states, they cannot.
You can choose to not pay it. The debt of course will remain as a negative mark on your credit report.
You can choose to make partial payments. If you do make a payment or even admit to owing the balance on a recorded phone call or in writing, this can reset the statute of limitations. In John & Mary’s case, this would reset it to another 4 years in which the creditor has the right to sue them for the balance.
You can choose to pay the debt off in full. If you choose this option, make sure that your creditor updates your credit report showing a zero balance. Please note that even if a debt collector tells you that they will update your credit reports, this only means that they will show the debt as being paid to a zero balance. They will not take the item off your credit report. In fact, the credit bureaus will not allow them to do that. It will remain on your credit report as a negative item albeit with a zero balance.
If the creditor insists that they can and will get the account removed from your credit report, get that commitment in writing before you pay the debt.
What Can Reset the Statute of Limitations?
At any time during the statute period or after, if you admit to owing the debt, negotiate a payment plan, or make a payment, the statute period can be rest allowing the debt collector the option to sue you for the balance.
What Should You Do If You Are Sued?
If you are sued by a debt collector whether it be within the statutory period or after, contact an attorney. You can request that the debt collector send you proof of when your last payment was made to establish the statute period. However, if you admit to owing the debt, the statute period may reset. It is best that you allow an attorney to have this communication for you.
Will a Debt That Has Passed Your State’s Statute of Limitations Remain on Your Credit Report?
The statute of limitations on debt is a completely different time frame than the statute on reporting items on a credit report. Whether positive or negative, your accounts can remain on your credit report for a period of up to 7 years from the date of the last activity on the account. The date of last activity is typically the last payment date or the last date that you admitted to owing the debt either verbally (recorded) or in writing.
How Can You Get Negative Accounts Removed from Your Credit Report?
When you dispute an account directly through the credit bureaus, the credit bureaus must then contact the creditor of record (the original creditor or the collection agency). If the creditor verifies to the credit bureaus that the information on your credit report is accurate within a 30-day period, the item will remain on your credit report. However, if the creditor does not respond to the credit bureau within 30 days, the credit bureaus must follow federal law and remove the item from your credit report.
If You Need Help Removing Negative Items From Your Credit Report
This is what we do and have done since 2004. There are specific codes and legal language that should be included in a dispute of an account on your credit report. In addition, we can share other ways to increase your credit score as well.
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We hope that we have answered the question, can a debt collector sue you? Please visit our library of articles on the topic of credit and credit scores below.