As a businessperson, your primary concern is running your business, not collecting old debts. This can make it rather easy to put off, or forget about, collecting old debts. However, there is a legal limit on the amount of time you can collect a debt. This is called a statute of limitations and can vary depending on the state you are in and the type of debt you are attempting to collect.
Once a debt is passed the statute of limitations that applies to it, it becomes known as “time-barred,” and you no longer have the right to take legal action against the debtor. While legal action may be your biggest asset, there are still other debt recovery solutions you might attempt to collect a debt that has been time-barred. There are also some regulations that you will want to abide by in that process.
What is the statute of limitations?
The actual amount of time that you have to collect an outstanding debt varies greatly from state to state. There are even differences in determining when the clock starts for that time.
In most states, the clock starts immediately after your debtor fails to make a payment. From that point, the statute of limitations is generally around three to six years, but can be as high as ten years. Knowing what the exact rules are for your state and situation is very important. This is another reason that hiring a debt collection agency can prove incredibly helpful.
What can I do about a time-barred debt?
While you do not have the right to pursue legal action to collect a time-barred debt, you do have a number of other alternatives. You are still permitted to contact the debtor and ask them to pay the debt; you just have no way of forcing them to pay. If the outstanding debt is valid, and the person really does want to pay it, you might just get lucky and collect the debt despite it being time-barred.
If you aren’t so lucky, you might still be able to use credit reporting as leverage over the debtor. If the debtor is concerned with their credit status, they will not want you reporting outstanding debts, which typically stay on a credit report for up to seven years.
What rights do debtors have regarding time-barred debts?
Time-barred debts are very difficult to collect because the debtor has all of the leverage. If the debtor has done their research, they will likely ask you if the debt is time-barred. If you answer this question, your answer must be truthful, however you can also decline to answer.
The debtor may also dispute the debt and ask you to verify it. In these situations, you must stop trying to collect the debt until you provide the debtor with written verification that the debt is valid.
What are the debtor’s options?
When it comes to collecting time-barred debts, you are generally at the mercy of whatever the debtor decides to do. Typically, debtors have three options. They can refuse to pay anything, make a partial payment, or pay off the entire debt.
If the debtor refuses to pay anything, the creditor has virtually no options except to keep trying until the debtor requests in writing that the creditor stop attempting to collect the debt. If a partial payment is collected, the statute of limitations clock is restarted in some states. This makes knowing your state laws important. Finally, if the debtor decides to pay the debt in full, they will expect you to provide them with written evidence that the debt is paid.
Of course, the easiest way to collect time-barred debts is to never let them become time-barred in the first place. If you are too busy running your business to waste time attempting to collect outstanding debts, perhaps it’s time to hire a reputable debt collection company that know how to deal with bad debts.