Collecting debts can be a very difficult and often confusing task. There are a tremendous number of rules and regulations on federal, state, and local levels that can confuse even the professionals. That means that if debt collection is not your full time job, you might already be in over your head, or possibly even taking illegal actions without realizing it.
One of the most complicated legal aspects of debt collection deals with the statute of limitations that applies to a particular debt. There are many variables at play here including when a debt was defaulted on, where the debt occurred, and where the company that issued the credit is located.
Once a debt reaches the statute of limitations, it is considered “time-barred” and the creditor is no longer able to sue the debtor for the amount owed. The FDCPA also forbids any debt recovery attempts on time-barred debts.
So how do you know when the statute of limitation is up for a particular debt? It depends…
Statutes of Limitations by State
The amount of time that is allotted for the statute of limitations on a given debt varies from state to state. Most states fall somewhere in the range between three and ten years and the clock generally starts from the minute that the original contract was voided.
The states with the longest statutes of limitations on open credit accounts are Iowa, Rhode Island and West Virginia at ten years. On the shorter side, South Carolina, North Carolina, New Hampshire, Mississippi, Vermont, Maryland, Louisiana, Kansas, Alabama, Alaska, Arizona, Delaware, and Washington D.C. all have statutes of limitations of only three years.
Most of the remaining states fall somewhere in the range of four to six years.
Dealing with Interstate Collections
Handling a statute of limitations issue when everyone is located in the same state is a pretty straightforward process, but that process gets a lot more complicated when multiple states are involved.
Most people would assume that the state where the debtor currently resides would be the state that governs the statute of limitations on that person’s debt. But what if that person moves from one state to another? Does the statute of limitations suddenly change?
Another popular assumption is that the state where the creditor resides would control the statute of limitations. Arguments can also be made for the state where the original transaction took place.
In most cases, the creditor will use whichever option is most advantageous to their case. However, all laws are open to interpretation, and judges tend to exercise their authority in cases regarding interstate debt collections.
Open for Interpretation
As if this entire process wasn’t already complicated enough, judges overseeing debt are pretty much able to interpret these collection laws in any way that they see fit. Since there is not exactly a great deal of solid footing to be had on this issue, you are always best to assume the worst-case scenario and play by those rules.
That means you should assume that any debt you are looking to collect has a statute of limitations of only three years and make sure that the processes you put into place will allow you to collect well before that time expires.
If you are either too busy to implement this type of process or simply don’t want to be bothered with it, it might be a good idea to start working with a debt collection agency right from the start. Either way, you definitely want to make sure that you never lose a debt collection because of a statute of limitations issue.