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The Importance of Understanding the Debt Collection Statute of Limitations

  • Commercial Debt Collection
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Debt collection is covered by the statute of limitations. The statute of limitations refers to the law that sets a deadline for law suits. For every type of case, the law sets the timeframe in which debt collection agencies can legally attempt to collect on that debt , including filing lawsuits against the debtor.

Normally, the debt collection statute of limitations begins to run the date the contract is “breached” “or broken.” In reference to debt collection, after the designated statute of limitation expires, a debt collector can no longer collect on the debt. So it is imperative you hand the debt over to a collection agency to begin the process before the debt collection statute of limitations expires.

The debt collection statute of limitations is computed according to the last time your client made a payment to the outstanding debt. In most states, 180 days(Six months) will be added to the date the last payment was received. From that point, the debt collector will then add the number of years of the statute of limitations according two things: the state where the debt was incurred and the type of agreement that was entered into for said debt

For example: let’s assume the debt was an open-ended account in Tucson, AZ. The last payment received was May 15, 2016. 180 days is added to the date bring the date to November 11, 2016. From that point, six years will be added to the November 11, 2016 date. Making the date that the debt collection statute of limitations expires November 11, 2022. All debt collection activities must cease upon that date since the debt collector can no longer use legal action to force the debtor to pay.

This is why Knowing the debt collection statute of limitations in your area is so very important. With this information, you can know the situation of your account and how it affects the chances of you being able to recover your outstanding receivables and/or debts

To determine the statute of limitations on your debt, it is important to know what kind of debt you have.

Open-Ended Accounts – According to the Truth in Lending Act, an open ended account is a type of credit plan that has repeated transactions and interests and balances that vary from time to time. Credit cards belong to this classification.

Oral Contract – This is a contract where you verbally guarantee someone that you will pay the debt you owe him

Written Contract – A debt where the creditor and debtor sign an agreement that details the terms of payment as well as fines and penalties

Promissory Note – This involves a written document where the debtor agrees to pay the debt according to a specific schedule of payments. The debtor also agrees on the applicable interest rates.

Remember, even if the account is only a month (or a even day) away from the expiration of the statute of limitations, you can reset the the six months and six years statute timeframe expiration date if your client/customer pays just a single dollar towards the outstanding debt resetting the six months and six years statute timeframe for any possible law suits.

For a complete lis of the Debt Collection Statute of Limitations by state visit:

If you are a business owner trying to collect on past-due accounts, you may find the process quite frustruating. Turning accounts over to a collections agency may seem like a desperate step. But debt collection is a team effort, with you and the collection agency working together to accomplish the same goal: recovering your money. Contact The Stevens-Lloyd Group today so we can start working together right away.