When you default on a debt, your creditor has several options. They can try to get you to pay, they can sell the debt to a collection firm, or they can just write it off. Of course, they also have the option of suing you for the defaulted amount plus additional fees. But, how long can they, or the collection agency who collects on your debt, go after you for the money?
Debt Collectors Time Limit
Collection agencies like new debt. If they can get debt that was defaulted on within the last 180 days, they will have a very high probability of contacting you for payment. When they buy the debt, they get the most recent phone numbers, address, your social security number, and any other information the lender feels is important. They may even get original signatures or paperwork showing that you agreed to the terms of service and are legally liable for the debt.
When the collector gets a hold of your file, they start pursuing it immediately. You will get letters, phone calls, and a nagging suspicion that every time your phone rings, it will be someone wanting the contents of your wallet. The fresher the debt, the harder they work, because they know where to find you.
After a period of time, generally 9 months to a year, the debt starts to be come known as ‘stale’. This debt is much harder to collect on. Someone who has defaulted on a loan or credit card probably has defaulted on others, and may have faced eviction or has moved to try to find work. Their phone numbers probably don’t work, the address is invalid, and the debt collector has to work harder to find them (see How Debt Collectors Find You). This debt, when purchased, has a much lower return than does fresh debt. Because of that, it is substantially less expensive than fresh debt for a collection agency to buy.
Older still is out-of-statute debt. From a legal standpoint, each state has rules about how long a person can be sued by a collection agency to try to collect debt. When the debt passes a certain number of months or years after the initial default, the collector can no longer sue you for it. That is why they often sue in the few months before debt goes out-of-statute. Once the suit is filed, it won’t matter how long you wait. There is no time limit after filing. Before filing, however, they have limited time.
Out-of-statute debt is very hard to collect on. However, since it is so cheap, it takes very few collected dollars for a collection agency to make a profit. They may, depending on your initial contract, also be able to try to collect on interest at the default rate. So it takes very few payments to make these folks feel wealthy. Since the time period varies for this debt, you should be familiar with your state’s laws regarding collections. Texas is among the most favorable to the debtor at 4 years, and Ohio is one of the strictest at 15 years.
The bottom line, however, is that there is no time limit for them to try to collect. There is a time limit for suing you, but they can call you forever.
One final note about this subject: If you respond to a collection agency by making a payment, the clock starts ticking again for out-of-statute collections. At that point, they can sue you again, as long as the original time period for out-of-statute has not elapsed. And if you want the calls to stop, you need to learn your rights under the Fair Debt Collections Practices Act (FDCPA).