Can a Creditor Sue After Selling to a Collection Agency?

Debt may be necessary sometimes, but not paying a debt won't make it disappear. In fact, an unpaid debt can haunt you for a long time and make your life miserable. It can lead to late fees and growing interest charges. A creditor may decide to sell the debt to a collection agency. If so, you could face legal action and possibly incur legal fees on top of the debt you already owe.

Collection Agencies

Here's something you should know: when it comes to collection agencies, a creditor has two options. The first option is to hire the collection agency to collect the debt on its behalf. The collection agency is paid a fee or percentage of the debt when it collects payment from the debtor. The second option is for the creditor to sell debt to the collection agency outright. A collection agency can sue a debtor for the debt. The agency can do this as the owner of the debt or on behalf of the creditor.


The creditor often retains ownership of the debt when it hires a collection agency. What this means is that either the agency or creditor can sue you. Once the creditor sells the debt to the collection agency, however, it cannot sue the debtor for that debt. This is because the creditor no longer owns it. The collection agency is now the legal owner of the debt and therefore, has the legal right to sue the debtor for payment of it.


An unpaid debt can change hands often and quickly. Collection agencies purchase debt in order to make a profit. A collection agency may purchase a debt from a creditor at a reduced rate. If the agency is unable to collect on the debt within a certain time frame, it may decide to sell that debt to another collection agency. This means the new collection agency can pursue you for the debt. Whichever collection agency that owns the debt has the right to sue you for it.

Statutes of Limitations

Each state has a limit on how long a creditor or collection agency can come after you for a debt, which can be a good thing for you. This is called a statute of limitation. As long as the debt falls within the statute of limitation, the owner of the debt can sue you. Once the statute of limitations has passed, however, you are no longer legally required to pay the debt. If the debt owner sues you for it after the statute of limitation has passed, the court will toss out the lawsuit if you bring to the court's attention the fact that the debt has expired.


About the Author

Mack Mitzsheva is a tax lawyer, personal finance expert and the author of the forthcoming ebook, "10 Best Places to Work Online." Mitzsheva is also a social media entrepreneur with five successful sites under her belt. Always innovative, Mitzsheva is currently developing a cutting-edge budgeting app for newlyweds.