Can a Collection Agency Sue You if You Are Still Trying to Negotiate the Debt?

Collection agency debts can turn into lawsuits.
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Being loaded down with so much debt that you can't make even the minimum payments on time, means it's only a matter of time until your accounts get turned over to a collection agency. It's an uncomfortable feeling to have to face litigation when you're just getting started on your life together. Under certain circumstances, a collection agency can sue you even while you're trying to negotiate debt. The determining factor is whether the agency owns the debt, not that you're negotiating.

Assigned Debt

The original creditor, the bank that made the loan or provided the credit card account, may have its own internal collections department or it may assign the account to an outside collection agency. The outside agency does not own the debt. Any negotiations for a reduction in the debt have to be approved by the original creditor. Since the collection agency doesn't own the debt, it doesn't have the standing to sue you. Some agencies will threaten litigation to scare you into paying more. That's a violation of the Fair Debt Collections Practice Act and subject to $1,000 fine payable to you if you sue. The act says it's unlawful to threaten a lawsuit if the agency doesn't have any intention of suing. Since the agency doesn't own the account it can't sue.

Owned Debt

The collection agency buys the debt from the original creditor, usually for pennies on the dollar. The agency then becomes the owner and has the legal standing to sue you. Once the debt is bought, you have to pay the collection agency, not the original creditor. When you receive the notice from the collection agency it should say whether they own the debt or the debt has been assigned. These agencies can proceed with litigation while you're negotiating. It's not an uncommon tactic to threaten litigation to scare you into paying them more. If they do not intend to sue, it's a fair credit act violation.

Junk Debt Buyers

Junk debt buyers purchase huge quantities of accounts at one time. They sometimes set up a collection agency as a division of the company, or sometimes as a separate company. The names will often be similar. For example, the junk debt buyer will be Mittleton Credit LLC and the collection agency Mittleton Funding LLC -- these are fictitious names. Standard procedure for junk debt buyers, through their collection agencies, is to try to settle for close to the total of the debt. So while you're talking with Mittleton Funding LLC, Mittleton Credit LLC may be filing a summons in court to obtain a judgment. Don't assume that the debt is yours when contacted by a junk debt buyer. Bank of America recently sold accounts to junk debt buyer companies and admitted that their records were faulty or the loans may have been paid.

Debt Settlement Companies

You could negotiate with each original creditor or the collection agency yourself. This is dreary work, as each one will try to convince you to pay them the full amount by whatever means you can come up with the money. Debt settlement companies do the negotiation for you. You then pay the debt settlement company one monthly payment. The settlement company puts it a trust fund and pays the creditor when there is enough money. If the collection agency owns the debt it can proceed with litigation while you're negotiating, the debt settlement company is negotiating or after an agreement has been reached, but the agency hasn't been paid.


Drowning in debt is bad enough, facing a lawsuit for that debt is worse. Don't hide your head in the sand and hope the lawsuit goes away. It won't. The collection agency, original creditor or junk debt buyer may be filing the lawsuit as a way to obtain a default judgment. If you don't respond to the lawsuit, the judge will award a default judgment to the agency, creditor or junk debt buyer for the amount in the lawsuit. You are then subject to wage garnishments, liens, sheriff sale of your assets and garnishing your bank account. Junk debt buyers bank, literally, that most of the debtors won't respond and the plaintiff will get a judgment. Don't think that just because you don't have a job now or many assets that you're judgment proof. You have a long productive life ahead of you. That judgment will affect your future.

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