Can a Collection Agency Sue After They Put Collections on a Credit Report?

A collection agency can sue you at any time it likes. What is important to you as a debtor is how likely a collection agency is to win a lawsuit. Only after a collection agency wins a lawsuit can it pursue direct action against your assets in an attempt to garner payment. Being on the wrong end of a lawsuit as a debtor can be much worse to your credit report than a collections notation.

Credit Report and Collections

A creditor will not normally assign your account to collections unless you are seriously delinquent. Different creditors have different definitions of what being seriously delinquent means, but typically after a few months of non-payment, a creditor may consider either assigning your account to an in-house collection agency or hiring a third-party collector. At this point, your account will reflect a collections notation on your credit report. Since you still owe the debt, a collection agency can continue to pursue you for non-payment, including filing a lawsuit against you.

Lawsuits

After your account goes into collection status, you may be even more likely to be sued by a collection agency. By not paying your debt for a number of months, you indicate either an inability or an unwillingness to make good on your debt. By filing and winning a lawsuit, a creditor can force you to make payments, if at all possible. If you receive a valid lawsuit, your only real remaining options are to make payment or file bankruptcy. Since many debtors are reluctant to file bankruptcy, a collection agency can possibly speed up payment by filing a lawsuit, even after it goes to collection status on a credit report.

Bankruptcy

If you file bankruptcy after your account goes into collection on your credit report, a collection agency can no longer sue you. Since the court needs time to evaluate the merits of your bankruptcy petition, all legal action against you must cease until the end of your bankruptcy case. This process is known as the automatic stay of bankruptcy. If your case results in discharge, your creditors lose all rights to file lawsuits against you, as your debts are discharged. With a case dismissal, you are once again subject to the collection actions of your creditors.

Long-term Effects

Even if a creditor hasn't turned your account over to collections, damage has already been done to your credit report just by missing a payment. Although longer-term delinquencies can cause more damage to your credit score, any type of delinquency, including a 30-day late payment, will remain on your report for a full seven years. Only a bankruptcy with its 10 year duration will stay on your credit report longer.