As a business owner, you should know that there is a statute of limitations on debt collection. It can last anywhere from three to 15 years, depending on the state, which can make it hard for you to collect if the debtor continues to ignore your attempts.
Federal laws limit the length of time creditors can list negative accounts on credit reports to seven years. This begins on the date of the delinquency. After that, the account falls off the credit report.
That doesn’t necessarily mean that you can’t continue to attempt to collect. Your business has a right to sue for past-due debts, but if you wait too long, the debt may be unenforceable.
The seven-year myth
Many consumers assume that debt collectors can no longer come after them after seven years since the statute of limitations has run out at that point.
The reality is that if a debtor incurs a debt, then a creditor can continue to pursue them to pay it. The Fair Credit Reporting Act states that credit bureaus may remove debts after seven years in some instances but that they must remain in other situations.
Since every state is different, the point at which your company cannot continue to try to collect may vary based on where the debtor resides and the type of debt involved. You may want to consider alternate collection options, including partial payments, if you’re having trouble getting a debtor to pay up. This option could restart the clock and give you more time to collect on the debt.
Measures you might want to take if you’re having difficulty collecting debts
As a business owner, you must understand the Fair Credit Reporting Act. You might find yourself in legal hot water if you violate this federal law by continuing to collect on a debt past an existing statute of limitations. You may want to discuss any older debts you’d like to collect with an attorney to learn what options you may have since the limitations may start applying.