Yes, they can sue. Will they? Typically the amount has to be very large to make it worth their while, because winning a lawsuit does not mean guaranteed payment, it means they must expend resources and they will get a judgment but not necessarily any money. So right off, the lawsuit is an extra expense for them.
As long as you continue to talk to them and don't drop off the face of the planet, they likely will not sue but that also depends on the character of the collections company. If they are afraid of losing their rights because of the statute of limitations, they may decide a suit is worth it.
Consequences of suit - if they win, they will get a judgment that will go into the public record and on their credit record. No garnishment. They can, however, place a lien so that if your friends own real property, they cannot sell or transfer it without paying the judgment first. That is not automatic, however. It is an extra step the judgment holder would have to take.
I understand you are trying to do the snowball method, but you might want to go ahead and formulate an offer for this creditor that includes manageable payments. Be prepared with a total amount (I suggest starting with 40 cents on the principal dollar with a goal of paying no more than 60 cents on the principal dollar) and a length of time/amount per month that they can offer. Keep in mind they probably bought this account for substantially less than the amount due, so they can still make money by accepting less than face value. (Of course, if this is just another subsidiary of the original creditor that is calling itself a collection agency, the economics may be different for them.)
If you get an agreement make them put it in writing before any payment exchanges hands. Good luck!!