Facts

• The Fair Debt Collection Practices Act, which regulates debt recovery practices within the collection industry, notes that a collection agency cannot legally send a consumer a notice threatening to file a lawsuit against her unless it actually intends to do so. Although the time frame during which a collection agency may sue a debtor is limited, no law dictates that the company must file its lawsuit within a certain amount of time after threatening the debtor with legal action.
  
  

Time Frame

• A collection agency has the right to file a lawsuit at any time before the statute of limitations expires in the debtor's state. State laws vary regarding how long a company may sue for an unsecured debt, and can range from two years to 10 years, depending on the state. If a collection agency files a case against a debtor after the statute of limitation on the debt in question expires, the individual may use the expired statute as a defense to have the case dismissed.
  
  

Features

• Although the practice violates FDCPA regulations, sending notices to consumers threatening to sue is a common tactic used by many collection agencies. Some collection agencies even employ in-house attorneys to draft the letters -- making the debtor believe the notice came from an outside attorney and thus giving the threat greater weight. Unfortunately, proving that a collection agency has no real intent to sue is difficult if the statute of limitations for the debt is still in effect.
  
  

Considerations

• While the main goal of lawsuit threats is to elicit payment from a debtor, some lawsuit threats have a secondary purpose -- they reinstate the collection agency's ability to pursue the debtor in court. If a consumer, frightened of a lawsuit against him, makes a payment to the collection agency, the statute of limitations on the debt begins anew. If the debt was previously too old to sue over, the very act of making a payment reinstates the debt collection company's right to bring the case to court.
  
  

Warning

• Just because a consumer doesn't receive formal notice of an impending lawsuit, that doesn't mean that the collection agency hasn't filed one. In most states, it's the plaintiff's responsibility to notify the defendant of the lawsuit. If the defendant fails to respond or appear in court, the plaintiff wins the case by default. Some unethical collection agencies intentionally serve lawsuit notices to old or incorrect addresses in an effort to obtain a default judgment against the defendant.