What to Know Before Filing a Debt Collection Lawsuit
If you're running a third-party collection agency, legal action can feel like the nuclear option. But sometimes, it's necessary—especially when a debtor stops responding, a payment plan fails, or the amount of money justifies escalating the account.
That said, a debt collection lawsuit isn't something you want to stumble into. If you file without checking key compliance boxes, your agency could face more than a dismissed case—you could end up in hot water with the Consumer Financial Protection Bureau (CFPB), violate the Fair Debt Collection Practices Act (FDCPA), or trigger legal pushback from consumer attorneys.
Here are 10 things your agency must do before taking a consumer to court.
1. Validate the Debt — And Triple Check Your Work
You can’t sue a consumer if you haven’t properly validated the debt—and “properly” means more than just mailing a boilerplate letter. Under the FDCPA and Regulation F, debt collectors must send a written Model Validation Notice and wait at least a month before initiating additional contact with the debtor. If you’re not using it (or a close variation), you could be out of compliance. It includes:
- An itemization of the debt (including interest, fees, payments, and credits)
- The date the amount was calculated
- Instructions on how the consumer can respond or dispute
- A detachable (or digitally fillable) consumer response form
- Clear consumer communication rights and methods
Pro tip: Use a platform like Aktos to automate validation timelines, trigger compliance alerts, and store proof of delivery in the account record.
2. Know the Statute of Limitations (By State and Debt Type)
Every debt collection lawsuit has an expiration date called the statute of limitations. Once that time runs out, the debt becomes time-barred—meaning you can’t legally sue to collect it.
Statutes vary by state and debt type:
- Credit card debt: 3 to 6 years, depending on state
- Medical bills: 4 years in some states, longer in others
- Student loans: Federal student loans often have no statute
Suing on a time-barred debt is a violation of the FDCPA and state attorney generals have fined agencies for it.
Modern platforms like Aktos automatically flag time-barred debt using built-in, location-based compliance logic—helping agencies apply the right statute of limitations rules and avoid legal risk.
3. Check for Licensing Requirements
Not every state allows a collection agency to sue consumers without a license or registration.
For example:
- California requires a license under its Debt Collection Licensing Act.
- New York requires registration with the Attorney General.
- Texas may not require a license—but does require a surety bond.
You may also need to register in the state where the consumer lives, not just where your agency operates.
Use a compliance checklist or a platform that tracks your state licenses, renewals, and bonding status.
4. Verify the Documentation
To win a debt collection case, you’ll need more than a phone number and balance—you need to prove the debt exists.Ensure that you have full documentation and have compiled all the evidence from the creditor to ensure it holds up in court. After all, you don’t want to spend hundreds of dollars in court just to realize you have the wrong invoice.
That includes:
- Statements or records from the original creditor
- A history of charges or payments
- Chain of assignment (especially for debt buyers)
Agencies that rely on spreadsheets or disconnected document systems often struggle to produce this. And without documentation, judges may throw out the case—or worse, award attorney’s fees to the consumer.
Pro tip: If your agency operates more like a law firm that exclusively litigates delinquent accounts, consider a case management software.
Learn more: AI in Debt Collection: How Leading Agencies Are Winning Today
5. Review the Debtor’s Dispute Status
Has the consumer disputed the debt?
You cannot proceed with a lawsuit until the dispute has been resolved and verification sent. That includes disputes made via:
- Phone (if verbal disputes are honored)
- Email or written mail
- Self-service portals (if offered)
Under Reg F, you must pause collection—including legal escalation—until you verify the dispute.
Disputes are often vague (“I don’t think this is mine”), so make sure your team knows what triggers the dispute clock. Aktos automatically pauses workflows when disputes are logged.
6. Know What Funds Are Off-Limits
Let’s say you win the court case. You still can’t garnish everything. Many types of income are protected under federal law, including:
- Social Security
- Veterans benefits
- Unemployment compensation
- Disability payments
Even if you get a court order, trying to garnish exempt funds can violate the FDCPA or state law—and lead to lawsuits or penalties from the FTC.
Smart debt collection software make it easy to flag legal risks—like exempt income or dead-end accounts—before your team spends time prepping for court.
7. Avoid Filing on Identity Theft or Fraud Cases
If the account is flagged for identity theft, or the consumer has filed a fraud claim, you must stop all collection and investigate.
Suing someone for a debt they didn’t incur is one of the fastest ways to get slapped with a CFPB action or legal aid lawsuit.
Make sure your agents aren’t ignoring fraud claims—or dismissing them as stall tactics. Most states require prompt investigation and documentation.
Best practice: Escalate all fraud claims to compliance immediately and tag them to prevent legal workflows from triggering.
8. Review State or County-Specific Court Requirements
Every jurisdiction has its own rules for filing a debt lawsuit:
- Some require attaching the original contract
- Some mandate a consumer-friendly summary of the case
- Others specify which court you can file in (e.g., small claims vs. civil)
You’ll also need to file court papers correctly, pay filing fees, and often serve documents via a court clerk or licensed process server.
Consider integrating with a law firm that specializes in multi-state collections—or using case management software with state-specific legal workflows.
9. Monitor Contact Rules (Before and After Filing)
Excessive contact before filing can come back to haunt you in court.
- Regulation F limits how often you can contact a consumer—typically no more than seven attempts within a rolling seven-day window.
- Some states are stricter; Massachusetts, for example, allows only two contact attempts in the same time frame.
- Excessive outreach, misleading messages, or off-hours communication can be used as evidence in a countersuit.
Even during litigation, you must follow consumer contact rules. That includes honoring cease communication requests and updating contact preferences.
Use omnichannel systems with built-in contact caps and call tracking. Manual tracking = risk.
Learn more: Regulation F vs. State Laws: What Debt Collectors Must Know
10. Don’t File Just to Pressure the Debtor
Filing a lawsuit purely to scare someone into paying? That’s considered abusive collection under the FDCPA.
And if your goal is just to force a payment plan or negotiation, you may be better off using compliance-friendly outreach tactics first (SMS, AI phone agents, etc.).
Lawsuits are tools, not threats. If you file, be prepared to go the distance—including trial, judgment, and enforcement.
Final Thoughts: Lawsuits Are a Tool—Use Them Wisely
Suing a consumer should never be your default strategy. It’s a resource-intensive, highly regulated process that requires airtight documentation, clear communication, and careful legal coordination.
But when done right—and for the right accounts—it can be a powerful tool to recover unpaid debt and protect your client’s interests.
With modern software like Aktos, your team can automate compliance, flag legal risks, and streamline litigation workflows from default judgment to garnishment—without hiring extra staff or exposing your agency to legal risk.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Debt collection agencies should consult with legal counsel to ensure compliance with all applicable federal and state regulations.
