A frequent inquiry received by my office involves the question of whether a debt collector can threaten to sue a consumer (alleged debtor) over a debt. The answer is yes, with limitations.
[T]he following conduct is a violation of this section: (5) The threat to take any action that cannot legally be taken or that is not intended to be taken.
When a debt collector threatens to sue, it is difficult for a consumer to know whether the debt collector actually intends to follow through on its threat. Examples of circumstances that tend to make the threat suspicious include: the debt is relatively small; the debt is disputed; or the debt collector has infrequently filed collection lawsuits in the past, or even not at all. Researching the specific debt collector is a good place to start. Consumer advocate and credit expert Bud Hibbs has a website on debt collectors that includes a list of collection agencies to avoid. You might also try a google search on the debt collector. Speaking with an experienced attorney that handles debt collection matters for consumers also can be very helpful. California residents can contact my office. Residents outside California can find an attorney through the National Association of Consumer Advocates. The bottom line: if the debt collector does not actually intend to sue, or intend to sue in the threatened time frame, the debt collector is in violation of the FDCPA.
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.
Courts have held that it is unfair and deceptive for a debt collector to threaten to file a time-barred debt. In California, most debts are outside the statute of limitations four years after the debtor became delinquent. However, any payment at all within that four year period may start a NEW four year period, and a written agreement to pay the debt after the statute of limitations has expired may start a new four year period on the new agreement. Thus, consumer-debtors should proceed with extreme caution if a debt collector tries to induce a payment on the debt.
The bottom line regarding a debt collector's threats to file a lawsuit is that it may not do so if it does not actually intend to file the lawsuit in the manner and time period threatened, and they may not do so if the debt is actually barred by the statute of limitations. There may be other limitations as well (for example, threatening to file the suit in a manner that overshadows a consumer's right to dispute the validity of the debt), as this is not meant to be a comprehensive article. Researching the debt collector and consulting with a consumer attorney would be prudent in any situation where suit is being threatened.