I went to a dentist, whose name doesn't belong here, got some xrays and a prescription. The bill was $104.00, which I paid the same day. Next thing I know, they are sending me to collections for this amount. I provided proof of payment and wrote letters, and yet this is still on my credit report. I have filed a dispute with two credit agencies. Can I sue these people? And keep in mind, I am giving you the short version of this situation.
You can sue your cat. The proper question is "Do I have an actionable claim?"
Use your state's consumer protection laws: Namely, send certified return receipt letter to the collection company disputing the debt. Then, if the collection company does ANYTHING (calls you, sends a letter) after your proper notice of dispute of the alleged debt, then each act is a violation of consumer laws and will warrant x amount of payment from them: The Fed's FDCA (Fair Debt Collection Act) allows up to $1,000 per violation for acts after receiving your proper notice of dispute to the debt.
Any change to your credit status after dispute relating to the disputed debt is actionable under consumer laws. Most states have some remedy tied to collection violation again. The federal statutes' remedies work too.
In some states you can sue them in small claim court and seek a declaratory judgment that you do not owe them money. I've done it several times.