If someone owes you money after months or even years have passed, you might wonder if there’s anything you can do about it.
As business collection experts can share, this is an extremely common question. In your case, the answer will depend on a number of factors, including the laws of your state.
When Do Legal Remedies Run Out?
Every state has a statute of limitations for debt, which restricts how long an individual or a business can take legal action when customers don’t pay. After the time period specified in the law, the creditor can no longer:
- Win a court order to recover past-due amounts
- Garnish the borrower’s wages to repay the debt
- Place a lien on property that was pledged as collateral when credit was granted
Note that state laws sometimes treat verbal and written agreements differently. For example, in West Virginia, debt that involves a written contract expires after 10 years, but deals made with a friendly handshake (and no paperwork) mean the creditor’s right to relief through the courts lasts only 5 years. To find out what your state laws say, a quick online search can help.
Another wrinkle is whether or not the laws of the state or country where the debt was incurred will apply, or the laws of the state or country where the debtor lives or does business. If you are trying to collect a debt that crosses state or national lines, your best move is to consult an attorney.
Is That The End Of The Story?
Even if you can’t resolve old debt through the justice system, there may still be ways to pursue the matter. Applicable state laws may allow you to reach out by phone or in writing to open negotiations with the person or business who owes you money. However, you should consider your chances of success first.
As some firms will share, here are some general rules of thumb you might encounter:
- When debt is 90 days past due, you have a 70% chance of recovery.
- At the 6-month mark, your odds drop to around 50%.
- After 12 months have passed, there’s only a 23% chance you will ever see payment.
These findings hold true even if the statute of limitations lies far in the future. They reflect the fact that it’s much easier to work out a solution early, when both parties hope to preserve good credit scores and personal or business relationships.
So if months or years have elapsed, you’re not completely out of luck in seeking payment – but you will probably benefit from the help of a professional debt collector. Preparing yourself to accept an offer that may be lower than you hoped is also essential.
What If You’re The Party Who Owes Money?
If you receive notice of legal action regarding unpaid debt, the first step is to determine whether you (or your business) actually owe the amount claimed. In the digital age, debt scams are all too common, so don’t immediately assume the notice is valid.
First, ask for written proof of the debt. This will help you determine if the claim is real or if the notice should have gone to another person or business with a similar name. If you recognize the creditor, check payment records to see if the total amount due is correct.
If the claim is valid, don’t ignore it. A judgment on your record can cause severe damage to your personal or business finances. Lenders, suppliers and partners can learn a lot from your business or personal credit report. Low scores can stop you from getting a loan, buying or renting property or even finding a new job.
Know your rights. If you’re struggling with personal debt, learn more about the Fair Debt Collection Practices Act (FDCPA). This federal law regulates what creditors can and can’t do in pursuing unpaid balances. The law does NOT apply to business debts, but many business creditors follow similar guidelines to prevent claims of harassment or abuse. If a creditor threatens or bullies you, or simply won’t leave you alone, to seek protection.
Make a repayment agreement and stick to it. Contact the creditor (or collections agency) to set up a payment plan, then follow through. This is the only way to protect your credit rating and maintain your long-term financial health. Contact a collection agency near you for further help with these issues.
Thank you to Dean Kaplan of The Kaplan Group for the insight on debt collections.