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How to Tell If You're In Danger of a Lawsuit From a Collection Agency

Updated on August 11, 2010

Collection agencies have the option to file a lawsuit against debtors who fail to pay their debts in a timely manner. Although paying a collection agency is never a good idea if you can help it, it may be necessary if you find yourself in danger of a lawsuit. Some collection firms are more court-happy than others, so at least a portion of whether or not you’re in danger of being sued depends on luck just as much as your personal financial situation.

Why Collection Agencies Sue

The debt that collection agencies collect is unsecured. Thus, a debt collector can’t simply foreclose on your home or repossess your car because you refused to pay. It may, however, be able to use these collection remedies if it wins a lawsuit against you.

Winning a lawsuit gives debt collectors special rights they didn’t enjoy beforehand. For example, a company that previously had no other option than to hound you mercilessly with phone calls and letters may suddenly have the legal right to garnish your wages, garnish your bank accounts and place liens against your personal property. 

Recently Charged Off Debts

If the collection agency recently purchased the debt, it will probably try traditional collection methods first before attempting to drag you to court. The more recent the debt is, however, the more likely the company is to have access to paperwork proving that you owe the debt. If you show up in court and request proof, the judge can toss the lawsuit out of court if the plaintiff doesn’t provide it. The better prepared the collection agency is, the more likely it is to sue. 

When your debt was charged off matters.
When your debt was charged off matters.

High Debts Can Result In Collection Lawsuits

Most collection agencies don’t bother wasting time and money suing debtors over small debts. Filing a lawsuit against you in your local court costs the collection agency money. If you respond to the lawsuit (and most people don’t), the company must then send an attorney or representative to attend the hearing lest it be thrown out of court. Thus, the expenses the company incurs add up quickly.

It isn’t financially worth it for a collection agency to sue a debtor if it can’t recover the amount it spent trying to sue him. Although creditors have the right to ask the court to award legal fees in some states, not all states grant them this privilege. 

Collection Agencies Watch Your Assets

Do you have a good job? Have you recently applied for a mortgage or other large loan? Do you have retirement funds and other assets? The better off you are financially, the more of a target you create for debt collectors. Debt collectors know that they can’t squeeze blood from a turnip and are unlikely to ever procure payment from individuals who’ve lost their homes to foreclosure and can barely put food on the table. 

Skip tracers research everything from your employment history to your mortgage and marriage records. If any major changes in your life have resulted in an income increase, the collection agency will find out about it and you’ll be in more danger of a lawsuit from a collection agency. 


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