All collection agencies serve as third-party debt collectors that either work under contract recovering unpaid debts for other companies or purchase and collect on delinquent accounts from the original creditor. Any debt collector with the legitimate right to recover a debt you owe reserves the right to sue you. When doing so, however, the company must closely adhere to both state and federal regulations regarding the debt collection legal process.
Formal Notification
Any collection agency that files a lawsuit against you must provide you with formal notification of the suit based upon your state's laws. A formal summons and complaint serves as adequate notification of the impending lawsuit and informs you of the company's complaint against you and the lawsuit's court date. Collection agencies must deliver the summons and complaint according to your state's guidelines.
Informal Notification
A debt collector's threat to sue a consumer is only legal if the collection agency has the right to file a lawsuit and the company actually intends to follow through with legal recourse. Threatening legal recourse in an effort to frighten a debtor, if the company cannot or will not sue, is illegal in every state under the Fair Debt Collection Practices Act. Informal notification of a lawsuit does not meet the legal requirements for service. The collection agency must either serve the debtor a summons and complaint or prove that it exhausted every effort in its attempt to locate the debtor.
Time Limit
The statute of limitations in the consumer's state determines the collection agency's legal right to file suit against the consumer. The statute of limitations begins 180 days from the date the individual made his most recent payment on the debt -- regardless of whether that payment was to the collection agency or the debt's original creditor. State statutes of limitations for debt collection are based on specific state laws and, as such, vary by state. Although collection agencies can file lawsuits against consumers once the statute of limitations has passed, doing so is not legal. Should such a lawsuit occur, the debtor can use the expired statute as his court defense.
The Court Judgment
A collection agency's goal in pursuing legal action against a debtor is to win a judgment. The court will award a judgment in the collection agency's favor if the debtor does not respond to the company's summons and complaint and does not argue his case in court or if the debtor answers the summons and complaint, appears in court yet argues the case ineffectively.
Post-judgment Collection
Like the statute of limitations regulating debt collection lawsuits, the laws surrounding a collection agency's additional rights, once it receives a judgment, vary by state. In general, the company will move to garnish the individual's wages or levy her bank accounts. Certain forms of income, such as child support, unemployment, Social Security and other forms of retirement benefits, are exempt from seizure by collection agencies following a court judgment.
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