In the subtropical hilly areas of China, a collapsing gully, a particular type of permanent gully, poses a great threat to the productivity and sustainability of the local ecological and agricultural systems. However, few studies have been performed regarding the effects of collapsing gully erosion on soil degradation. The aim of this study was to evaluate the effects of collapsing gully erosion on soil-quality-related physical and chemical properties. The collapsing gullies that were severely affected by erosion processes were considered at three stages (initial, active and stable stages) and corresponding soil samples were collected to analyze the spatial variation of the soil physical and chemical quality at each stage. The changes in the properties were assumed to be considerable in the regions affected by the erosion process compared with those unaffected by this process. Soil physical properties were more susceptible than soil nutrients to collapsing gully erosion in different spatial locations. The soil quality index (SQI) system consists of total nitrogen (TN), total phosphorus (TP), pH, capillary porosity (CP), sand content (SA), soil cohesion (SC) and root density (RD). Collapsing gully erosion was found to affect the soil physical and chemical properties by progressively reducing the SQI. The mean SQI value was the lowest in the active stage of the collapsing gully, with a higher soil degradation. For the different spatial positions in the collapsing gullies, the scour channel showed the lowest SQI value. The limiting indicators varied in the different stages or spatial sites in the collapsing gullies.