Can You Be Sued by a Collection Agency for Non-Secured Debt?
Debt refers to money owed to a creditor. Secured debt is debt that is attached to a physical item, such as a home or car. Non-secured debt is debt that isn't secured by physical property. This includes debt from credit cards, personal loans and medical bills. The status of the debt as unsecured does not alleviate the debtor's responsibility to pay it. The Fair Debt Collection Practices Act gives collection agencies the ability to pursue debtors about delinquent non-secured debt.
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Creditors
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A creditor has the right to sue a debtor for unpaid non-secured debt. Creditors often hire collection agencies to collect such debt. The agency then has the right to sue the debtor on behalf of the creditor in order to secure payment of that debt. Creditors also sell delinquent debts to collection agencies. In this case, the collection agency becomes the creditor since it now owns the debt. The agency can sue to collect from the debtor in this case as well.
Significance
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A collection agency can place a collection account on your credit report. Under the Fair Credit Reporting Act, these derogatory accounts can stay on your report for up to seven years. Collection agencies cannot pursue your assets without suing your first. The goal of a lawsuit is to obtain a judgment against you. A judgment gives the collection agency the legal right to garnish your bank accounts or a portion of your wages and to place a lien on property that you own, depending upon the laws of your state.
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Considerations
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The statute of limitations on debt determines how long a collection agency can pursue you for that debt. The statutes vary by state. Once debt has passed this statute, the state no longer considers you to be legally responsible for the payment of that debt, which means the creditor cannot pursue a judgment against you; however, collection agencies will often sue a debtor even if the debt has expired under state law. If the debtor appears and informs the court that the debt is no longer valid, the case is dismissed. If the debtor fails to show up for court, the judge will issue a default judgment against you, which means you're now legally responsible for the debt and the agency can pursue your assets.
Warning
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A judgment has a separate statute of limitations in each state. The statute begins to run the day the court issues the judgment against you. In Vermont, for example, the statute of limitations on judgments is 20 years. This is significant because even if you are judgment proof now, meaning you have no assets that the collection agency can pursue or collect, the statute gives the collection agency the legal right to pursue those assets that you acquire during this 20-year period.
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References
- Bankrate.com; New Owner of Old Debt Must Still Be Paid; Steve Bucci; February 2011
- Equifax: Who Can See My Equifax Credit Report?
- Equifax: Length of Credit History
- Bankrate.com: State Statutes of Limitations on Old Debts; Steve Bucci; January 2004
- Card Report: Statute of Limitations on Judgments
- US Legal: Unsecured Debt
- Federal Trade Commission: Debt Collection FAQs: A Guide for Consumers; February 2009
