If a debt you failed to pay ends up with a collection agency, the collection agency has various methods at its disposal to help it collect the money -- including lawsuits. If a collection agency wins a lawsuit against you, most states give the company permission to garnish your paychecks and bank accounts. Some states even give creditors who win judgments the right to place liens against your personal property.
Facts
Although many collection agencies use lawsuits as a collection tool, the process is time-consuming and expensive for the company. Not all states give creditors the right to include their legal fees in the lawsuit balance. Thus, depending on your state's laws, if the legal fees the collection agency would incur by suing you are considerable, it would not be financially advantageous to the company to file a lawsuit to recover $1,000. If the collection agency can request that you pay its legal fees, however, your risk of a lawsuit increases. According to New York's Neighborhood Economic Development Project, individuals who owe $1,000 or more to collection agencies have a higher risk of being sued.
Features
All companies operate by their own sets of guidelines, and collection agencies are no different. Whereas one collection agency might only file lawsuits for debts over a pre-set amount, another may sue each and every debtor regardless of how little each owes. Thus, if the collection agency holding your debt has a history of suing debtors, your risk of facing prosecution for the money you owe is higher than if the company files few lawsuits.
Time Frame
Collection agencies can only legally file lawsuits on debts that still fall within the statute of limitations for legal action in the debtor's state. As soon as your state's statute of limitations passes, your odds of facing a lawsuit markedly decrease. Some collection agencies, banking on consumers' ignorance of the law, file lawsuits on out-of-statute debts in the hope of obtaining a judgment. If you can prove that the statute of limitations on the debt has passed, the court has little choice but to dismiss the lawsuit.
Considerations
The Fair Debt Collection Practices Act prohibits debt collectors from threatening to take legal action when the collection agency has no real intention of doing so. However, unless the statute of limitations on the debt has expired, there is no way to prove that the company doesn't actually intend to sue. Because of this, lawsuit threats are a common collection tactic that many collection companies employ. Thus, a collection agency's threat to sue doesn't mean that a lawsuit is necessarily imminent.
Benefits
A collection agency's only motivation for suing you is that the court judgment it receives will enable it to collect the debt from you through garnishment or liens. If you don't own any property and lack a steady income or your income is exempt from garnishment, such as a retirement pension or Social Security, suing you would only cost the company money it would not be able to recover. If the collection agency files a lawsuit, notifying it of your lack of assets will often result in the company's attorney dropping the lawsuit.
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