When a debtor owes a creditor money, the creditor, in lieu of attempting to collect on the debt himself, will outsource the loan to a collection agency. This agency will then attempt to convince the debtor to pay what he owes. However, as with crimes, most unpaid debts carry a statute of limitations. This means that a collection agency can only attempt to collect the debt for a certain period of time before they must write it off.
Statute of Limitations
The state of limitation on a delinquent debt begins either from the date that the debtor made his last payment activity or from the date that the creditor wrote off the debt as delinquent. After a statute of limitations on a debt has expired, the debtor is free of the debt forever. According to BCS Alliance, statutes of limitations are put in place out of fairness, to prevent a borrower from having to worry about debts years after they were made delinquent.
The statute of limitations for a debt varies depending on the state in which the debt was incurred and on the type of debt. For example, in Louisiana, the state of limitations on a debt incurred from a written contract is 10 years, while in North Carolina it is only three. The statute on a promissory note issued in Ohio is 15 years, while in Alabama it is six.
Collection After Expiration
According to BCS Alliance, a person may still be sued by collection agencies after a statute of limitations has expired. However, the agency's lawsuit has no legal validity. In this case, the debtor must appear in court and explain to a judge that the statute of limitations has expired. If the judge rules according to the law, the case will be thrown out of court and the debt will remain uncollectable. However, if a debtor agrees to pay the debt before a statute of limitations has expired, the statute may restart.
Although most private loans are covered by the statute of limitations, debts incurred from the federal government are not. This includes delinquent student loans, back taxes and delinquent child support payments. Most federal debts can be collected until a person is dead; in some cases, payment of these debts may even be taken out of a person's estate. However, the federal government will generally not outsource these debts to collection agencies.
- BCS Alliance: State Statutes of Limitation on Debt Collection
- Privacy Rights Clearinghouse: Debt Collection FAQ
- Fair Debt Collection: Statute of Limitations by State
- Federal Trade Commission Consumer Information. "Time-Barred Debts." Accessed Feb. 29, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act § 605. Requirements Relating to Information Contained in Consumer Reports," Pages 22-23. Accessed Feb. 29, 2020.
- Consumer Financial Protection Bureau. "What is the Statute of Limitations on a Debt?" Accessed Feb. 29, 2020.
- Federal Trade Commission. "Under FTC Settlement, Debt Buyer Agrees to Pay $2.5 Million for Alleged Consumer Deception." Accessed Feb. 29, 2020.
Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.