Receiving a letter or phone call from a debt collection agency can be stressful, particularly when the collector threatens to take you to court. Many Wisconsin consumers wonder whether a collection agency can actually sue them, what happens if a lawsuit is filed, and what rights they have when dealing with a debt collector.

The answer depends on the circumstances. A creditor or debt collector may pursue legal remedies to collect a legitimate debt, but the collection process is subject to Wisconsin and federal laws. Consumers also have defenses and legal protections that may apply when a collection lawsuit is filed.

Understanding how debt collection lawsuits work in Wisconsin can help you respond appropriately if a collector threatens or files a lawsuit against you.

This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship. For guidance specific to your situation, consult a licensed Wisconsin attorney.

Can a Debt Collection Agency Sue You?

A debt collection agency may be involved in pursuing a lawsuit to collect a debt, but Wisconsin law makes an important distinction regarding who has authority to initiate legal action.

The Wisconsin Department of Financial Institutions explains that a third-party collection agency cannot initiate legal action on its own. A collection agency can recommend legal action to the creditor, and if the original creditor has authorized legal action, the agency may communicate that intended legal action.

This means that receiving a threat of a lawsuit from a collection agency does not necessarily mean that a lawsuit has already been filed.

A Collection Letter Is Not the Same as a Lawsuit

A collection letter and a lawsuit are two different things.

A collection letter is generally an attempt to obtain payment without going to court. A lawsuit, on the other hand, begins when the appropriate court documents are filed and served.

If you receive an actual Summons and Complaint, the situation has progressed beyond ordinary collection communications. You should review the documents carefully and pay close attention to the response deadline.

Ignoring a lawsuit can result in a default judgment against you. Wisconsin's court system recognizes that individuals and corporations can be sued in small claims court, and Wisconsin small claims procedures generally apply to qualifying money claims of $10,000 or less.

What Happens When a Debt Collector Files a Lawsuit?

A typical debt collection lawsuit may begin with the creditor or an authorized party filing a complaint against the consumer.

The lawsuit may claim that:

• You borrowed money.
• You failed to make required payments.
• A balance remains outstanding.
• The plaintiff is legally entitled to collect the balance.
• The plaintiff is entitled to a judgment.

The consumer then has an opportunity to respond and defend against the allegations.

The fact that a collection agency or creditor files a lawsuit does not automatically mean that the plaintiff will win.

Does the Debt Collector Have to Prove You Owe the Debt?

Yes. If you dispute the debt, the collector or creditor may have to establish the basis for its claim.

Potential issues may include:

• Whether the debt actually belongs to you.
• Whether the amount claimed is accurate.
• Whether the plaintiff owns the debt.
• Whether the plaintiff has documentation supporting its claim.
• Whether payments were properly credited.
• Whether the debt is too old to be legally enforced.

For debts that have been sold or transferred between companies, ownership and documentation can become particularly important.

What If the Collection Agency Purchased the Debt?

Some debt collectors purchase portfolios of debts from original creditors. Others collect debts on behalf of the original creditor.

If the company suing you claims to own the debt, you may have the right to require it to establish its legal ownership and the amount allegedly owed.

Documentation may include account records and evidence showing the transfer of the debt from one owner to another.

If the plaintiff cannot establish that it owns the debt or has the legal right to enforce it, that may provide a defense to the lawsuit.

Can You Be Sued Over an Old Debt?

There are statutes of limitations that restrict the amount of time a creditor generally has to bring certain types of claims.

Wisconsin generally has a six-year limitation period for actions on contracts under Wis. Stat. § 893.43, although determining when the limitations period begins and whether an exception applies can require a careful review of the facts.

An old debt should not simply be ignored because you believe the statute of limitations has expired. If you receive a lawsuit, you should still respond and raise any applicable statute-of-limitations defense.

What If You Do Not Recognize the Debt?

If you do not recognize the debt described in a collection letter or lawsuit, investigate it carefully.

Possible explanations include:

• Identity theft.
• A debt belonging to another person.
• A debt that was sold to another company.
• An account with incorrect identifying information.
• A debt that has already been paid.
• An account with an incorrect balance.

A consumer should not assume that a collection agency's records are automatically accurate.

What Are Your Rights Against Debt Collectors?

Wisconsin's Consumer Act regulates debt collection involving covered consumer transactions. Wisconsin Statute Chapter 427 prohibits certain collection practices, including threats of violence, threats of criminal prosecution, certain false statements, harassment, and threats to take action that is not actually intended or taken in the regular course of business.

Wisconsin law also restricts certain communications with employers before a final judgment has been obtained, subject to statutory exceptions.

Federal law may provide additional protections depending on who is attempting to collect the debt and the circumstances involved.

Can a Debt Collector Threaten to Sue You?

A threat to sue is not automatically illegal.

Wisconsin's Department of Financial Institutions explains that legal action may be threatened when it is taken in the regular course of business or is actually intended with respect to the particular debt.

However, threatening legal action that is not actually intended or using a false or misleading representation about legal proceedings may create legal issues.

This distinction can be important when reviewing collection letters and telephone communications.

What Should You Do If You Are Sued?

If you receive a Summons and Complaint concerning a debt, take the lawsuit seriously.

You should:

Read the Court Documents

Determine who filed the lawsuit, the amount being claimed, the court where the case was filed, and the deadline for responding.

Check the Amount

Compare the amount claimed with your own records. Look for payments, settlements, credits, interest, and fees that may affect the balance.

Determine Who Owns the Debt

If the plaintiff is not the original creditor, determine whether there is documentation establishing the plaintiff's right to collect the debt.

Consider Potential Defenses

Depending on the circumstances, potential defenses may involve:

• Incorrect debt amount.
• Wrong person.
• Lack of documentation.
• Lack of ownership.
• Prior payment or settlement.
• Statute of limitations.
• Violations of consumer protection laws.

Respond to the Lawsuit

Do not assume that ignoring the lawsuit will make it disappear. Failing to respond or appear when required can result in a default judgment.

Wisconsin Law Help specifically advises consumers not to ignore debt collection lawsuits and explains that the response requirements depend on whether the case is filed in small claims or general civil court.

Can a Consumer Protection Lawyer Help?

A Wisconsin consumer protection attorney can review the collection lawsuit and determine whether the creditor or collection agency has a valid claim.

An attorney may be able to:

• Review the Summons and Complaint.
• Examine the underlying account records.
• Determine whether the plaintiff owns the debt.
• Analyze the amount being claimed.
• Identify potential defenses.
• Investigate statute-of-limitations issues.
• Identify potential violations of Wisconsin or federal consumer protection laws.
• Negotiate a settlement.
• Defend you in the lawsuit.
• Pursue claims against a collector when its conduct violated applicable law.

Legal representation can be particularly valuable when the debt involves a significant amount of money or when the collector's conduct appears improper.

What Happens If the Collector Wins?

If a creditor or debt collector obtains a judgment, it may have additional legal tools available to collect the judgment.

Depending on the circumstances, these may include:

• Wage garnishment.
• Certain execution procedures.
• Other judgment-enforcement remedies permitted by law.

A judgment can therefore make a debt significantly more difficult to resolve.

For that reason, responding to a lawsuit before a judgment is entered can be extremely important.

Conclusion

A debt collection agency cannot simply do whatever it wants to collect money from a Wisconsin consumer. Wisconsin law regulates debt collection practices, and a third-party collection agency's authority to pursue legal action involves the creditor's authorization.

If you receive a collection letter threatening a lawsuit, do not assume that you have already been sued. However, if you receive a Summons and Complaint, the matter has entered the court system and requires prompt attention.

Whether you are dealing with a collection letter, a lawsuit, or aggressive collection activity, understanding your rights can help you determine the best way to protect yourself.

A Wisconsin consumer protection attorney can review the debt, investigate the collection practices, identify potential defenses, and help determine whether negotiation or litigation is appropriate.

Attorney Nathan DeLadurantey offers free consultations to explain your legal rights in Wisconsin. Free consultations can be scheduled online.