Old debt can come out of nowhere. You may even forget someone owes you money until you revisit your books. Before you make plans to collect on your debt, it’s best to find out how long debt is valid, how long your company can try and collect a debt, and your state laws regarding the statute of limitations on old debt.
Debt collectors might never give up, but after a specific period, they can no longer sue for non-payment. While unpaid debt doesn’t go away, you may have to approach the process differently. It might be time to consult a debt collection agency and find out how long a creditor can collect on a debt.
How Does Debt Collection Work?
Debt collection passes through various stages, the first of which often involves the original creditor. Around 30 days after a payment’s due date, the debt becomes delinquent if unpaid. The creditor will start calling and sending notices.
If the creditor is unsuccessful, they may sell the debt to a collection agency after a specific period has elapsed — around 180 days. Outsourcing the debt can minimize the creditor’s loss by allowing a professional debt collection agency to help collect payment. For many businesses, involving a debt collection agency is more cost-effective than recouping the losses in-house.
Though the debt stays the same, the debtor can expect the debt collectors to be in touch instead of hearing from the original creditor. Debt collectors can call and contact people by mail to convince them to repay what they owe, but they must rely on the debtor to pay unless they obtain a judgment in court.
In some states, collectors can pursue unpaid debt as long as they would like, but to get a judgment against someone, they must take them to court before the statute of limitations runs out, and win.
What Is a Statute of Limitations on Suing to Collect a Debt?
The statute of limitations regulates how long debt collectors can legally sue for unpaid debt. Each state has a different statute of limitations, which can be anywhere from three to 20 years, depending on the type of debt. Once the statute of limitations has elapsed, the debt collectors can no longer sue.
While the debt statute of limitations can impede a debt collector’s ability to sue for the money, it doesn’t mean debtors get a free pass. The debt will still be on their credit report, impacting their ability to get mortgages and future credit. Debt collectors can still contact you and ask you to pay, but they can no longer get a judgment to garnish wages or levy accounts.
The Four Types of Debt
Elapsed time is only one factor determining the statute of limitations. The type of debt also plays a role. There are four kinds of debt to consider.
1. Oral Agreements
As the name suggests, oral agreements involve a verbal understanding between the lender and the borrower that the latter will pay back money borrowed after a predetermined period. Oral contracts are rare in business and primarily occur between friends and family.
2. Written Contracts
Written contracts are the standard for many lending agreements, including the amount owed, when it is due, agreed-upon interest, how to make payments, and many other terms. Both parties involved agree to the terms and sign the contract.
Written contracts are preferable because they provide a record of the debtor’s commitment to repay the debt, making it easier to prove there is an outstanding amount.
3. Promissory Notes
Promissory notes also provide a written record of a transaction, but less detailed. They only require the borrower’s signature to be enforceable. A student loan or mortgage is an excellent example of this type of contract.
4. Open-Ended Accounts
Typical examples of open-ended accounts are credit cards and lines of credit. These accounts remain open for an undetermined period as long as the debtor makes the agreed-upon payments. They can carry the balance on these accounts if they make the minimum required amount.
How Does the Statute of Limitations Work?
Each state has a statute of limitations for different types of debt. For example, if the statute of limitations is three years for a specific kind of debt, the collector can’t sue anymore after those three years have elapsed.
In most states, the statute of limitations ranges between three and six years. Still, it’s best to learn about your state’s regulations so you understand what to do.
State-by-State Statute of Limitations
Consult the table below to establish how long a creditor can collect on a debt in your state.
| State | Oral agreements | written contracts | promissory notes | open-ended accounts |
|---|---|---|---|---|
| Alabama | 6 years | 6 years | 6 years | 3 years |
| Alaska | 3 years | 3 years | 3 years | 3 years |
| Arizona | 3 years | 6 years | 6 years | 3 years |
| Arkansas | 3 years | 5 years | 5 years | 5 years |
| California | 2 years | 4 years | 4 years | 4 years |
| Colorado | 2 years | 6 years | 3 years | 3 years |
| Connecticut | 3 years | 6 years | 6 years | 3 years |
| Delaware | 3 years | 3 years | 3 years | 3 years |
| Florida | 4 years | 5 years | 4 years | 4 years |
| Georgia | 4 years | 6 years | 4 years | 4 years |
| Hawaii | 6 years | 6 years | 6 years | 6 years |
| Idaho | 4 years | 5 years | 5 years | 4 years |
| Illinois | 5 years | 10 years | 10 years | 5 years |
| Indiana | 6 years | 10 years | 6 years | 6 years |
| Iowa | 5 years | 10 years | 10 years | 5 years |
| Kansas | 3 years | 5 years | 5 years | 5 years |
| Kentucky | 5 years | 10 years | 10 years | 5 years |
| Louisiana | 10 years | 10 years | 10 years | 3 years |
| Maine | 6 years | 6 years | 20 years | 6 years |
| Maryland | 3 years | 3 years | 12 years | 3 years |
| Massachusetts | 6 years | 6 years | 6 years | 6 years |
| Michigan | 6 years | 6 years | 6 years | 6 years |
| Minnesota | 6 years | 6 years | 6 years | 6 years |
| Mississippi | 3 years | 6 years | 3 years | 3 years |
| Missouri | 5 years | 10 years | 3 years | 5 years |
| Montana | 5 years | 8 years | 5 years | 5 years |
| Nebraska | 4 years | 5 years | 5 years | 4 years |
| Nevada | 4 years | 6 years | 3 years | 4 years |
| New Hampshire | 3 years | 3 years | 6 years | 3 years |
| New Jersey | 6 years | 6 years | 6 years | 6 years |
| New Mexico | 4 years | 6 years | 4 years | 4 years |
| New York | 6 years | 6 years | 6 years | 6 years |
| North Carolina | 3 years | 3 years | 3 years | 3 years |
| North Dakota | 6 years | 6 years | 6 years | 6 years |
| Ohio | 6 years | 8 years | 6 years | 6 years |
| Oklahoma | 3 years | 5 years | 6 years | 5 years |
| Oregon | 6 years | 6 years | 6 years | 6 years |
| Pennsylvania | 4 years | 4 years | 4 years | 4 years |
| Rhode Island | 10 years | 10 years | 10 years | 10 years |
| South Carolina | 3 years | 3 years | 3 years | 3 years |
| South Dakota | 6 years | 6 years | 6 years | 6 years |
| Tennessee | 6 years | 6 years | 6 years | 6 years |
| Texas | 4 years | 4 years | 4 years | 4 years |
| Utah | 4 years | 6 years | 4 years | 4 years |
| Vermont | 6 years | 6 years | 14 years | 6 years |
| Virginia | 3 years | 5 years | 6 years | 3 years |
| Washington | 3 years | 6 years | 6 years | 6 years |
| West Virginia | 5 years | 10 years | 6 years | 5 years |
| Wisconsin | 6 years | 6 years | 10 years | 6 years |
| Wyoming | 8 years | 10 years | 10 years | 6 years |
What Happens if a Debt Collector Pursues After the Statute of Limitations Has Expired?
Consumers have several protections on debt collection activities after the statute of limitations has expired. If a debtor acknowledges an old debt, they could reset the statute of limitations.
In some states, acknowledging or paying an old debt can reset the statute of limitations for debt collectors to sue. However, debt only disappears once paid.
Depending on the state, debt collectors can still pursue a debtor after the statute of limitations has elapsed. Though they can no longer sue, they can still work to get the debtor to pay the debt. Paying a portion of the debt after the statute of limitations has expired can reset the clock in some states, allowing debt collectors the option to sue once again.
When Does the Statute of Limitations Clock Start?
In short, the clock starts ticking as soon as a debtor fails to make an agreed-upon payment. Still, they can reset the clock by paying the debt or reaching an agreement with a debt collector.
In some states, the clock can start when the most recent payment was made. Factors such as what type of debt agreement you had can also affect the statute of limitations starting point.
Be aware that credit card companies have regulations about which statute of limitations applies to them. If your business has relocated to another state, or the company you owe money to is in a different state, the statute of limitations could change. Consult a professional to ascertain when the statute of limitations ended and learn what actions you can take.
How Delinquent Debt Affects Credit Reports
While debt does not disappear after seven years, negative items may fall off a credit report once that time has elapsed. Many states have statutes of limitations shorter than seven years, which means amounts past the date of legal collection methods can still show up on credit reports.
If you are responsible for the debt, you have three choices — pay it off, negotiate with the creditor or debt collector, or wait for it to come off your credit report.
When Will a Debt Collector Sue?
Debt collectors often opt to pursue legal action for amounts over $5,000, but they can choose to sue for less. Debtors have to appear in court. If they don’t, the court will issue a judgment for the amount owed. Debt collectors can also find out where debtors work, attempt to garnish wages, or freeze their bank accounts.
Just because the statute of limitations has elapsed on a debt doesn’t mean a debt collector won’t sue. They may proceed with legal action if the date of the first missed payment in their records differs from the debtors.
The debt judgments will appear on a credit report and remain there for seven years, sometimes longer.
What Is Time-Barred Debt?
Time-barred debt is debt that still exists even though the statute of limitations has expired. While debt collectors can’t take a debtor to court to get the money back, they can still contact them in some states. In others, they cannot make contact regarding time-barred debt.
If a collector sues you over a time-barred debt, don’t assume you won’t have to appear in court. If you fail to appear, the court can favor the creditor. Instead, appear in court and inform the judge that the debt is time-barred.
Does the Debt Come off a Credit Report if the Statute of Limitations Has Expired?
Delinquent debt stays on your credit report for seven years, whether the statute of limitations has elapsed or not. While it loses impact as time passes, it doesn’t disappear until the seven-year mark.
Should You Collect Debts After the Statute of Limitations Has Expired?
Even if a debtor believes they have no obligation to pay their debt, they still need to consider their credit score. Regardless of when the statute of limitations ends, failure to pay a debt can stay on your credit score for seven years or more, significantly affecting your ability to qualify for personal loans, mortgages, and credit cards.
A debtor would be wise to negotiate a repayment plan if the debt is legitimately theirs. A business can continue trying to collect the debt or pass it on to a collection agency as long as the law allows.
What to Do When a Debt Collector Contacts You
When a debt collector contacts you, ask for the following information:
- The debt collector’s name, address, agency, and phone number
- The amount you owe, including interest and fees
- What the debt is for and when you incurred it
- The original creditor’s name
Ensure you are responsible for the debt. Mistakes happen, and collections can come after you for a debt that is different from yours. Remember, it’s illegal for debt collectors to threaten you, pretend to be government officials, or disclose the nature of your debt to friends, family, or business associates.
How Can a Debt Collector Help You Collect on Outstanding Debt?
The older a debt gets, the more challenging it can be to collect. Debt collectors have extensive experience, and have crafted effective processes for handling debtors and the invoicing process. They are aware of the tactics debtors use to avoid paying debts, and can counteract them for the best returns for your business.
Good debt collection agencies understand the pressures debtors could be under and can help them come up with workable solutions to pay the money they owe. They’re also aware of the legalities of debt collection and can come up with a solution that works for your business needs.
Stay Ahead of Your Debt With Altus
Collecting old debts can be challenging, especially if the statute of limitations prevents you from suing. While going to court may be out of the picture, you can still take action with a trusted partner like Altus Receivables Management.
Our mission is to retrieve outstanding business debt so your company can focus on business without the hassle of chasing people for money. With Altus, you only pay if we collect. We have the experts and resources required to provide you with high recovery rates and allay your compliance concerns across many industries. Contact us today to learn more about our services or get a quote on our competitive contingency pricing. You will quickly understand why Altus is North America’s leading commercial collections firm.
