How Long Do You Have to Recover Old Debt?

Creditors have the responsibility to recover old debts before they expire. The duration varies depending on the type of debt and state law. Learning the nuances and being proactive with your debt collection efforts is essential. Debt recovery agencies understand the laws and industry standards, and they can help you increase your recovery rates and collect debts before the limitation periods lapse.

This article discusses how debt recovery works, the meaning of the statute of limitations and how you can determine the limitation period of a loan. It also addresses the implication of debt collection expiration and the circumstances in which statute-barred debts can be revived. 

How Does Debt Recovery Work?

Every loan must be paid within a specified period, or it becomes delinquent. That allows the creditor to commence debt collection operations, including sending notices and making calls to remind the debtor to pay. When unsuccessful, the creditor may hire a third-party recovery agency to help them claim the due amount. 

The debt recovery agency steps into the creditor’s shoes and does the heavy lifting. They develop recovery strategies depending on the situation, following the debt recovery laws and best practices. One such law is the statute of limitations, which provides a timeframe within which the creditor can sue to collect the debt.

It’s essential to be proactive when claiming unpaid debt. Once the window closes, it becomes difficult, if not impossible, to collect your money. The time limit for collecting debt varies, depending on the type of debt and state laws. Also, the law has many nuances, making it crucial to contact a professional when loan payments are due. 

What Is a Statute of Limitations?

A statute of limitations sets the maximum time within which parties involved in a dispute can commence legal proceedings to seek relief. It’s like an expiration date for lawsuits. There are durations for different causes of actions — the legal claim that allows a person to seek legal remedy.

The time limit for collecting debt starts when the cause of actions accrues — when the borrower misses a payment or when the most recent payment is made, depending on the state. Once the duration runs out, the unpaid debt is considered statute-barred. It does not mean that your debt is cleared. Instead, the creditor cannot get a judgment against the borrower. Depending on the state, the creditor may continue other collection practices but within the law.

Borrowers often use the statute of limitations as a shield — a legal defense. Although the creditor may commence legal proceedings, the debtor must submit evidence to establish that the action is statute-barred. On the other hand, the creditor may argue that they brought the action within time or that the right to sue was revived. We’ll take a look at that in detail later.

What Is the Statue of Limitation for Debt?

To determine the period of limitation, you must know the debt type and state law:

1. Types of Debts 

Generally, there are four types of debt depending on how they were made:

• Oral contracts: Creditors and borrowers may enter into a loan agreement based on a verbal understanding. Although permitted, oral contracts must have the elements of a valid contract, including offer, acceptance, consideration and capacity. These kinds of agreements are usually used in informal settings.
• Written contracts: Unlike oral agreements, written contracts, like mortgages and personal loans, are documented and signed by each party. However, there are exceptions. For example, medical debts may still be considered written contracts without repayment terms or signatures.
• Open-ended credit: These accounts have varying revolving balances that you can borrow from repeatedly as long as you keep repaying. Classic examples are credit card debts and lines of credit. 
• Promissory notes: These financial instruments demonstrate a written promise to pay back money. They include debt repayment terms like payment schedules and interest rates. An example is a student loan.

It’s essential to note that while private student loans have limitation periods, federal loans do not. Federal student loan borrowers can be sued anytime to fulfill their repayment obligations.

2. State Law

Each state has legislation that specifies the limitation period for various causes of action. The duration for debts in each state varies depending on the type of loan. Here are six examples: 

• Ohio: The limitation period for oral agreements in Ohio is six years. Debts arising from written contracts have a 15-year limitation period.
• Texas: The limitation period for oral contracts, written agreements, promissory notes and open-ended credits in Texas is four years.
• Florida: Oral agreements, promissory notes and open-ended credits all have limitation periods of four years in Florida. Written agreements have a five-year limitation period. 
• Georgia: Oral contracts, promissory notes and open-ended accounts all have a limitation period of four years. Written agreements have a limitation period of six years.
• Missouri: Oral agreements have a limitation period of five years. The limitation period for promissory notes and written agreements is 10 years, while open-ended accounts have an expiration date of five.
• Oklahoma: Written contracts and open-ended credits in Oklahoma have five-year limitation periods each. Oral agreements have a three-year limitation period. The duration for promissory notes is three years.

What Are the Implications of a Debt Being Statute-barred?

The creditor may not get a judgment against the borrower. The creditor may sue, but the debtor can raise limitation as a defense. The court will likely rule that the creditor is not entitled to judicial remedies if successfully established. Creditors sometimes attempt to use other debt recovery strategies. However, the debtor is not obligated to repay.

Creditors must strive to get loans repaid as soon as possible. You can hire professional debt recovery companies where necessary. Debt recovery companies have the resources and experience to develop effective strategies to increase your recovery rates. They understand the regulations and can help you achieve your goals while maintaining your reputation.

Can Time-barred Debts Be Revived?

Time-barred debts can be revived in certain circumstances. An example is when the debtor makes a payment on an old, delinquent debt. Similarly, if the creditor and debtor enter a new repayment contract, that agreement becomes binding.

Contact SWRS for Your Debt Recovery Needs

Southwest Recovery Services, LLC offers accounts receivable management and debt recovery solutions to businesses in the United States. We have years of industry experience and multiple accreditations and certifications. SWRS combines excellent client service and professionalism with innovative strategies to achieve the best possible results. Do you want to increase your debt recovery rate? Contact us now!