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Correct, legally you have no debt and you have the right to sue him.
He can report to the credit bureau but you can dispute that with your evidence of his failure to follow the law and they will remove it from your report.
1. The letter from him with the damages and copy of the letter you sent to dispute the damages, and if the clerk of the court will sign a document stating that there is no case pending against you.
2. You can sue him for damages if you incur any cost for having to dispute the CB report.