What is the Statute of Limitations on Debt Collection Agencies?

Reader Question: "I am getting letters from a debt collector regarding an account that is several years old. Isn't there a statue of limitations for this kind of thing? How long can a collection company pursue an old debt that is unpaid?"

First, I want to define the phrase statute of limitations for readers who are not familiar with it. This is a legal term the refers to the length of time in which legal action can be taken. You hear this term used in the news a lot, when a person has committed a certain crime in the distant past. When they say it has exceeded the statute of limitations, they mean that it's past the point where legal action can be taken.

This concept also exists in the case of unpaid debts and collections. Except the statute of limitations for debt collection companies is not as clear-cut. In fact, it can be downright confusing -- especially with all of the misinformation people publish online these days.

Statute of Limitations for Debt Collectors

I think the best way to understand this process is start at the beginning. So let's talk about what happens when a debt goes unpaid, and how the statute of limitations comes into play.

• When a borrower goes into default (stops making payments), the original creditor has the right to send that account to a collection agency -- also known as a debt collector.
• Collection companies have a certain process they go through to try and recover unpaid debts. Typically, they will start with a letter of "introduction" to explain who they are, what debt they are trying to collect, etc.
• If the borrower does not pay the debt in question, the collection agency will move on to the next steps in their process. They might attempt to garnish the person's wages, which has to be approved by a judge in court. Yes, a debt collector can sue you in court.
• This entire process is regulated by federal law. Specifically, the Fair Debt Collection Practices Act (FDCPA) says what these companies can and cannot do when collecting.
• There is a statue of limitations that limits how long a collection company can pursue an old debt. These limitations are almost always defined by the state in which the borrower lives. A debt collector in Ohio, for example, has a much longer statute of limitations than a collector in Arizona (about 15 years and 3 years, respectively).
• Once the statute of limitations expires, neither the original creditor nor the collection agency can file a lawsuit. It's past the point of legal action by then.
• You'll need to do some research to find out what the laws and limitations are for your state. You might want to start with your state attorney general's website, or do a Google search for the key phrase "debt collection statute of limitations," followed by your state's name included. It varies from state to state, so it's not something I can easily include in this article.
  

Keep in mind, however, that an unpaid debt can still remain on your credit report. The statute of limitations only applies to legal actions (lawsuits), but not credit reporting. A negative entry can remain on your reports for up to seven years, according to the Fair Credit Reporting Act (FCRA).

So, to summarize: A statute of limitations is the period of time in which legal action can take place. After this time frame expires, a lawsuit cannot be filed. Such limitations are applied to the debt collection industry, but it varies from state to state. You need to research the laws in your own state to see who protections you have. These statutes do not apply to the credit reporting process -- that process is regulated by a different set of rules entirely (the FCRA).

I hope this answers your question about the statute of limitations for collection agencies in the U.S. Good luck.