Sara Reedy remembers clearly the start of her ordeal, and how surprisingly painful it was to have a gun jammed to her temple. Then her attacker demanded oral sex, saying he would shoot her if she refused. She was shaking, gagging.

"I had images of my family finding me dead," she told the Observer. "I closed my eyes and just tried to get it over with."

Reedy was 19 when the man entered the petrol station near Pittsburgh where she was working to pay her way through college and pulled a gun. He emptied the till of its $606.73 takings, assaulted her and fled into the night. But the detective who interviewed Reedy in hospital didn't believe her, and accused her of stealing the money herself and inventing the story as a cover-up. Although another local woman was attacked not long after in similar fashion, the police didn't join the dots.

Following further inquiries, Reedy was arrested for theft and false reporting and, pregnant with her first child (by her now ex-husband), thrown in jail. She was subsequently released on bail, but lost her job. More than a year after attacking Reedy, the man struck again, but this time he was caught and confessed to the earlier crime.

When the charges against her were dropped, Reedy sued the police and has now won a marathon legal battle and a $1.5m (£1m) settlement against the detective who turned her from victim into accused. The payment was agreed earlier this year, but can be revealed only now because of a non-disclosure clause that was part of the settlement.

Now 27, Reedy talked exclusively to the Observer to announce the settlement and speak out about how she hopes her vindication will change the way the police investigate rape. "I'm relieved that people will be able to see now that I was telling the truth," she said. "Although mine is an extreme case, I'm not the first – and I won't be the last."

Reedy's story is dramatic, but it comes against a backdrop of problems across the US, with accounts of police ignoring or neglecting rape reports, while bullying victims and scrutinising their behaviour rather than the suspect's.

"There is a national crisis," said Carol Tracy, of the Women's Law Project, an advocacy group in Philadelphia. "We're witnessing the chronic and systemic failure of law enforcement to properly investigate crimes of sexual violence."

Reedy said the police officer who took her to hospital from the petrol station in Cranberry Township, about 20 miles from Pittsburgh, in July 2004 was nice. But once there she was interviewed by Detective Frank Evanson. "I told him what happened. His next question was how often did I use dope. I thought he meant heroin – there is a problem with it in the area – but I told him I didn't use it. I told him I smoked marijuana occasionally, though not for a week. Then he asked me where the money was." Talking to me in the living room of her home in the small town of Butler, near Cranberry, Reedy shook her head incredulously. In the hospital, she had become angry with Evanson, and then a nurse and a doctor also questioned her account.

Joanne Archambault, a retired police sergeant who now trains officers in handling what she calls "one of the most difficult crimes to investigate", said this can be a common reaction. "When women don't act like the classic 'perfect, innocent victim' they can be seen as less credible. But trauma can have unexpected effects on how victims come across."

Reedy aroused further suspicion when she declined the offer of a victim's advocate. "The assault made me feel worthless, then I was degraded at the hospital for hours," she said. "I had to give intimate details again and again. I was afraid of being belittled even further." Reedy was swabbed for forensic evidence, but the material was never tested. This was despite the fact that it contained a fingernail that could have yielded DNA from her attacker.

After that night, Evanson continued to accuse Reedy, despite the other similar attack in the area, which he also investigated. Eventually she was arrested and the court refused bail. She remembers her sister screaming as Reedy was taken away in a police car: "I was terrified. I realised if I got the max I'd be in prison for seven years and not see my baby. I was so tense I couldn't eat."

Upon being bailed, she was turned away from a local victim help centre, and old school friends spread rumours about her. Even her parents expressed doubts about their daughter's veracity after talking to Evanson. But a month before Reedy's trial, Wilbur Brown, 44, was arrested after raping a woman in a convenience store several miles away. He admitted attacking Reedy too, and in 2006 she was in court to see him plead guilty to assaulting 10 women. He is now serving life in prison.

Reedy was diagnosed with post-traumatic stress disorder. "Major trust issues" left her unable to return to college or take a job. Her case against the Pennsylvania police department was initially dismissed in district court in 2009. With help from Archambault, the Women's Law Project and similar groups, and lawyer David Weicht of Pittsburgh firm Leech Tishman, she appealed.

In a precedent-setting decision against the police, the appeal judges ruled in 2010 that Evanson wasn't reasonable and lacked probable cause when he arrested Sara, and that the case could go to trial. The police finally settled before trial on behalf of Evanson, who is still in his job.

Reedy's victory has gone down in legal history. During her battle she testified in Congress, and this helped persuade the federal government this year to change the definition of rape to include forced oral sex and the rape of men.

"I had a sense of pride at that," said Reedy. Recently engaged to a local man whom she described as honest and hardworking, and considering starting work for her parents' trucking firm, she said she was relieved at her vindication: "If my story can bring about change, I owe it to people to tell it."