Collection Agencies

By Christy Birmingham

Just as foods have expiration dates, so do debts. Before you hire a debt-collection agency, learn the statute of limitations on debt to determine whether or not you can legally recover on an old debt. You should know your rights before you act.

What Is the Statute of Limitations?

The statute of limitations is the length of time a business or individual can legally take a debtor to court to recover monies owed. Over time, debts are often transferred from the original creditor to a debt-collection agency. But no matter who holds the debt, they have a limited time in which they can collect.

While the period varies from state to state, there are times when the courts overrule the statue on a case-by-case basis. This is usually for extremely large debt where the debtor and the debt owner have sufficient time and money. Generally the clock begins ticking on the date the debtor is last active on the account. Often that is the day when he or she last made a payment, though it could be the date that a payment agreement began or the debtor made a promise to pay. Best business practices require that you keep sales receipts and accounts receivable ledgers so proof of any activity should be readily available.

Every state has its own chart of statutes of limitations and they can be different for various types of unsecured credit. There are similarities as well including the statute does not begin on a minor until he or she turns 18, and some states stop the clock when the debtor leaves the country on military deployment or moves out of state. To find your state's statute of limitations visit here.

When the Debt Is Time-Barred

Once the statute of limitations has run out, the debt becomes "time-barred," and you can no longer sue the debtor for the money owing. While the debtor does still owe that money, you cannot pressure that person or company with legal action.

Of course, "That doesn't stop collectors from trying to convince a borrower to pay up," explains a recent post in the Boston Globe, because it remains legal to contact the debtor after the statute of limitations on debt has expired. Many people don't know about the limits and may pay voluntarily even after statute has run out.

Another critical point to know is that the clock restarts on the debt if the debtor takes any action on the account, such as making a payment (partial or full) or placing a new purchase. At that point, you are well within your rights to take legal action to get the money they owe you.

To get more details about the statute of limitations as it applies to your outstanding accounts receivable, contact an attorney. The professional can also advise you of the consequences for your company of carrying outstanding debts.