If you are experiencing financial hardships and can barely pay your debts, you are probably worried about collection measures your creditors will take against you and what could happen to you. Potentially you are considering debt relief, but will the creditor sue? What is the minimum amount the debt collection agency will sue for?
A common debt collection measure creditors take is hiring debt collection agencies to recover the debt or filing lawsuits against you. So, when can a lender hire a debt collection agency to recover their debt, and what is the debt limit past which your lender can sue you? Read on for answers.
What is the Minimum Amount a Debt Collection Agency Can Sue For
If you own any debt, you should keep up with your payments. However, sometimes, you might face financial hardship from losing your source of income and other reasons. Although falling back on your debt payments puts you in danger of extreme debt collection tactics, these tactics don’t happen over any amount. While most articles on the internet say the minimum amount a debt collection agency can sue for is less than $1,000, the fact is debt collectors can sue for $500.
So, if you have fallen behind on your payments with $500 or more, debt collectors can sue you. However, agencies consider different factors before deciding to sue over a debt. Depending on these factors, a debt collection agency can sue for what you consider a smaller debt.
Regardless, you may want to understand the statute of limitations for debt in your state. If the debt is past the statute of limitations, the creditor may not sue or receive approval for wage garnishment.
Reasons Why Debt Collectors Sue Debtors
A debt collection agency is a business that collects debt on behalf of lenders from debtors who have not been making payments. Once your account becomes delinquent, your lender can only try mild tactics to get you to pay. If their efforts don’t bear fruits and don’t prompt you to pay, the lender may decide to sell the debt to a debt collection agency at a reduced cost.
After the debt collection agency buys your debt, they become legally obliged to ask you to pay. So, they start pursuing you to make repayments. They can contact you through emails, phone calls, letters, home visits, etc. Although they cannot harass you, agencies are more consistent and will follow up more frequently.
If you don’t make payments for the debt, you might get a letter to serve as notice of a lawsuit. However, before deciding to sue, the debt collection agency will need to weigh if it is worth filing a lawsuit against you or not. If the agency finds it worth their time and resources, they will file a suit against you in the hope that the court will order you to repay your debt at the end of the case.
When the court judgment favors the debt collection agency and orders you to repay your debt, you might notice a wage garnishment of as high as 25% for consumer debt. The main aim of the collection agency suing you is to have you make repayments irrespective of how the payment comes in.
Although suing debtors is a common way to get debtors to pay, it doesn’t always happen. Here are some factors a debt collection agency should consider before deciding if to sue you or not.
a.) How Much You Owe
The amount of debt you owe is the major consideration of if the agency will sue. While some debt collection agencies can sue for $500, it is not enough incentive to have every agency sue. But, if you owe thousands of dollars, the agency has a lot of motivation to sue you.
Besides, the cost the agency will spend on suing is less than what they stand to gain if the court rules in their favor. In cases where the outstanding debt is some hundred dollars, the agency might lack enough incentive to take legal action. So, how much you owe is a significant factor influencing a debt collection agency’s decision.
b.) Your Financial Situation
Are you in a position to pay? A debt collector will consider how much money you make monthly, your debts, and your current employment situation. Based on this information, a debt collection agency can decide if to sue you or not. Remember, a lawsuit aims to get the court order holding you liable to pay, mainly through wage garnishment. So, if you have less income or are recently unemployed, their efforts to sue may be useless.
When the court orders a wage garnishment, the agency can take a certain percentage of your income. So, if your current income is low and you might only get pennies every month, it might not make sense for the collector to sue. But if you have a decent salary, suing you may be worth their time and effort. However, if your income is below a specific limit, you may be legally protected from wage garnishment.
The amount of resources available in the debt collection agency that bought your debt also plays a factor. If the agency is a large chain, it probably has enough resources to sue you. They might have excess funds to finance the case, hire lawyers and work the case.
On the other hand, if a smaller debt collection agency owns your debt, there is a high chance they may have limited resources. So, they will refrain from spending the little they have on lawsuits.
While these are just speculations, not hard and fast rules, every debt collection agency will need to determine if filing a lawsuit is worth using their resources on. They need to decide whether it is a financially wise decision to spend thousands to get you to repay your debt.
Do All Debt Collection Agencies Sue?
No, not all debt collection agencies sue their debtors. Filing a lawsuit will take time, cost money, and use other resources. Hence, it is not always a practical option for some agencies.
Tips to Help You Avoid Getting Sued by a Debt Collector
Have you fallen behind on your debt payments, and your lender has notified you that they have passed your case to a debt collection agency? If you are concerned the debt collector will sue you, here are some tips to protect yourself.
Try to be more communicative. If you have been notified that the debt collection agency intends to sue you, talk with them. Although it may seem overwhelming to schedule a talk with them, ignoring the notice will likely lead to the court granting the collection agency their judgment and will hold you liable to make the payments.
So, reach out to the agency. Most debt collection agencies want to get the most they can from the debt with the least resistance. So, if you can come forward and explain your situation, they can work with you on a flexible repayment plan. Besides, filing a lawsuit will cost them time and resources, and so, if they can work out something without going to court, they are likely to prefer the latter.
Reach out to the agency, ask about your options, and if you can work a flexible repayment plan. See if there is a negotiated price less than the total debt that the agency can settle for. This can help you compare bankruptcy vs debt settlement.
Besides contacting the agency, you can also file for bankruptcy and stop all pending cases against you. Furthermore, filing bankruptcy can lead to debt discharge, which means you won’t be legally obligated to repay the debt once your case gets discharged. However, if the court dismisses your case before granting a debt discharge, the collection agency will resume coming after you again.