Debt Recovery

Statute of Limitations in Debt Collection

Statute of Limitations (SOL) is a time period after which a debt collector loses the right to sue the debtor or take any legal action against him. Statute of limitations laws vary from state to state, for example in California it is 4 years while in Rhode Island it is 10 years.

In most states, it’s between 3 to 6 years. Debts that have passed the statute of limitations are also known as “time-barred debts“.

Q1. If the statutes of limitations have passed, is the debtor free from debt?

No, the debtor still has the moral obligation to pay. The debt has not disappeared just that the debt collector can no longer force a debtor to pay or sue him in court.

Q2. If a debt collector contacts a debtor after the Statute of limitations has passed, has he broken a law?

Not necessarily. Let us look at these scenarios.

– A debt collector may have a wrong “Date of Debt” in his system. It is also possible that the debtor has wrongly calculated it, and the Statute of Limitations has not yet expired. Both parties should clarify this amicably, so there is no confusion. Present the proof if necessary.

– A Debt Collector can still try to collect money by sending a letter and calling over the phone. The debtor can tell the collector that he has no intention to pay. The guidelines on the Statute of Limitations vary by each state (and sometimes cities too), a collection agency must be very careful while trying to collect on these time-barred debts.

Q3. What are the consequences of not paying the debt after the Statute of Limitations have passed?
The debt collector can report the bad debt to the credit bureau reporting agencies like Experian, Transunion and Equifax (if permitted by the state laws). That unpaid debt will appear on the debtor’s credit history for seven years. This will greatly lower the chances of a debtor taking more loans and sometimes even make harder for him to get a good job for many years to come.

But wait, the debtor may be on the hook for paying taxes on the forgiven debt.
There is another consequence of not paying the debt. If the financial institution forgives or writes off a debt over $600, they may send a Form 1099-C to the IRS and a copy to the debtor as well. This only applies to the principal amount, and interests and other fees cannot be added. IRS will ensure that this amount is added to the debtor’s income. There are some exceptions when this is not applicable, like the discharge of debt due to bankruptcy or debtor’s insolvency etc. Since the debtor took the money and did not pay it back, IRS treats this as an income and demands tax on it. If the debtor claims insolvency, then IRS form 982 may apply. The debtor should consult a tax professional to handle this scenario.

Q4. How is the Statute of Limitations date calculated?
First, let’s understand the “Date of Debt” concept. It is the date when the debtor made some activity on that account. It could be the date when the item was purchased, or when the payment was due, or when the last payment was made, or even when the debtor re-agreed to pay the debt (which means the debtor has agreed again to the ownership of the debt). The most recent date is called the “Date of Debt” and the SOL is calculated from that date.

A debtor may have agreed to pay in 4 different ways
a) Oral Contract – Debtor agreed to pay orally (ex: an orally recorded phone message)
b) Written Contract – This could be a signed contract or an invoice. ( ex: A medical bill plus a written agreement)
c) Promissory Note – In this, the details of repayments are spelled out – For example, mortgages or car loans.
d) Open-ended– Here the balance and repayment terms can change- Ex: Credit cards, line of credit etc.

Following are some examples of Statute of Limitations by each state (in the number of years).

State	Oral Contracts	Written Contracts	Promissory Notes	Open-Ended
Alabama	6 years	6 years	6 years	3 years
Alaska	6 years	6 years	6 years	3 years
Arizona	3 years	6 years	6 years	3 years
Arkansas	3 years	5 years	5 years	3 years
California	2 years	4 years	4 years	4 years
Colorado	3 years	6 years	6 years	6 years
Connecticut	3 years	6 years	6 years	6 years
Delaware	3 years	3 years	3 years	4 years
Florida	4 years	5 years	5 years	4 years
Georgia	4 years	6 years	6 years	4 years
Hawaii	6 years	6 years	6 years	6 years
Idaho	4 years	5 years	5 years	4 years
Illinois	5 years	10 years	10 years	5 years
Indiana	6 years	6 years	10 years	6 years
Iowa	5 years	10 years	5 years	5 years
Kansas	3 years	5 years	5 years	3 years
Kentucky	5 years	10 years	15 years	5 years
Louisiana	10 years	10 years	10 years	3 years
Maine	6 years	6 years	6 years	6 years
Maryland	3 years	3 years	6 years	3 years
Massachusetts	6 years	6 years	6 years	6 years
Michigan	6 years	6 years	6 years	6 years
Minnesota	6 years	6 years	6 years	6 years
Mississippi	3 years	3 years	3 years	3 years
Missouri	5 years	10 years	10 years	5 years
Montana	5 years	8 years	8 years	5 years
Nebraska	4 years	5 years	5 years	4 years
Nevada	4 years	6 years	6 years	4 years
New Hampshire	3 years	3 years	6 years	3 years
New Jersey	6 years	6 years	6 years	6 years
New Mexico	4 years	6 years	6 years	4 years
New York	6 years	6 years	6 years	6 years
North Carolina	3 years	3 years	5 years	3 years
North Dakota	6 years	6 years	6 years	6 years
Ohio	6 years	8 years	15 years	6 years
Oklahoma	3 years	5 years	5 years	3 years
Oregon	6 years	6 years	6 years	6 years
Pennsylvania	4 years	4 years	4 years	4 years
Rhode Island	10 years	10 years	10 years	10 years
South Carolina	3 years	3 years	3 years	3 years
South Dakota	6 years	6 years	6 years	6 years
Tennessee	6 years	6 years	6 years	6 years
Texas	4 years	4 years	4 years	4 years
Utah	4 years	6 years	6 years	4 years
Vermont	6 years	6 years	5 years	3 years
Virginia	3 years	5 years	6 years	3 years
Washington	3 years	6 years	6 years	3 years
West Virginia	5 years	10 years	6 years	5 years
Wisconsin	6 years	6 years	10 years	6 years
Wyoming	8 years	10 years	10 years	8 years

A state may alter the Statute of Limitations from time to time therefore do not rely on the table above. Your collection agency should have the most up-to-date information on this. Proof of last activity may be a copy of a check, credit card statement, and other forms of communication that may have happened with the debtor.

Q5. What can Restart the Statute of Limitations?

If a debtor makes even a small payment ( say even $10) after the Statute of Limitations has passed or agrees to make payment under a new arrangement, it can potentially reset the “Date of Debt” again. In other words, the Statute of Limitations will reset and the debt collector can sue the debtor in the near future.

Q6. Can the old debts be removed from the debtor’s credit report once the Statute of Limitations has passed?

It can be removed only if the debt is inaccurate or legally disputable or has been resolved. Statute of Limitations has nothing to do with credit bureau reporting and affects the credit score for 7 years. Medical debts are removed from credit reports when paid.

Q7. Why is there a concept of Statute of Limitations after all?

It’s a kind of fairness doctrine. A debtor cannot be harassed all his life for a debt he could not pay. After all, even a creditor risks if he does not take the full payment immediately. As the debt gets older, circumstances change, documents are lost and important evidence can be misinterpreted. The objective is to encourage diligent collections while evidence is available and fresh. Considering all these factors, the Statute of Limitations came into existence.

Most collection agencies will stop collecting on a debt once the SOL is reached. They just lost the biggest tool ( read it “soft scare tactic”) used to recover unpaid debts.

Are you looking for a collection agency? Get in touch with us by visiting our “Contact us” section.

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Finding a Good Collection Agency

Selecting the right collection agency can significantly boost your recovery rates, safeguard your reputation, and simplify your accounts receivable process. Here’s what you need to look for in a great collection agency:

1. Proven Track Record

Choose a collection agency with a solid track record. Check their reviews, success rates, and experience in your specific industry (medical, dental, commercial, education, etc.). Agencies with higher Google ratings (4.5 stars or above) and hundreds of positive reviews typically deliver better results.

2. Clear and Simple Pricing

Collection agencies usually offer two pricing models:

Fixed Fee (around $15 per account): Ideal for recent debts.
Contingency Fee (20%-40% of recovered amount): Best for older or tougher debts.

Always choose agencies transparent about their pricing, with no hidden fees.

3. Compliance with Laws and Regulations

The agency must strictly adhere to collection laws such as:

FDCPA (consumer protection)
HIPAA (medical debt privacy)
GLBA (financial information privacy)

This protects your business from lawsuits and preserves customer trust.

4. Skip Tracing Capabilities

A good agency will offer skip tracing—finding updated contact information, addresses, and employment details for debtors. While an individual search could cost you $50-$175, agencies often include it at no extra charge.

5. National Coverage and Resources

A collection agency with nationwide coverage can efficiently track down debtors who move between states. This maximizes your chances of debt recovery.

6. Excellent Customer Service

You want an agency that’s easy to work with. Test their responsiveness: Do they answer your questions clearly and quickly? Reliable customer support makes the collections process stress-free.

7. Preservation of Your Reputation

Your chosen agency represents your brand. Look for agencies committed to respectful communication. Over 80% of positive online reviews for top agencies often come from debtors themselves, impressed by the respectful and professional handling of their cases.

8. Efficient Reporting

Make sure the agency provides regular updates and clear reporting. This transparency helps you track your collection success and adjust your strategy if needed.

9. Legal Options if Necessary

Most debts (90%+) are resolved without going to court. However, your agency should have the option to escalate matters legally if needed, using a network of attorneys to efficiently handle tougher accounts.

10. Is Your Data Secure?

Sharing your customer data with a third party agency can be risky if they do not have appropriate security measures in place. Ask for all the certifications and in case they have cyber security insurance.

Final Tip

Don’t just pick the cheapest option. Select an agency that offers the right combination of price, reputation, recovery success, compliance, and customer care. Choosing wisely can significantly improve your cash flow and reduce financial stress.

Ready to move forward? Contact NexaCollect to discuss your specific needs and see how we can help you collect your outstanding debts professionally and efficiently.

What is Skip Tracing? Find the latest contact information of a person

What is Skip Tracing?

Skip tracing is a specialized service to locate a debtor’s current address, employer, phone number, and financial status. Advanced skip tracing services can reveal further details like assets, spouse information, Social Security Number (SSN), and date of birth. Typically, skip tracing costs between $50 to $175 per lookup, though collection agencies often pay mere cents per search due to their bulk usage.

Why Use a Collection Agency for Skip Tracing?

Hiring a collection agency is significantly cheaper—usually around $15 per account. They provide:

Free skip tracing to locate the debtor.
Multiple demand letters sent to your debtor.
Checks for bankruptcy or deceased status.
Direct payments to your account without extra costs.

Collection agencies achieve lower rates because they subscribe to skip tracing databases in large volumes, dramatically cutting costs.

Caution: Skip tracing can sometimes yield outdated or incorrect data, particularly phone numbers and emails, so use results judiciously.

Who Uses Skip Tracing?

Debt collectors
Private investigators
Bail bondsmen
Process servers
Repossession agents
Journalists

These professionals use skip tracing ethically within legal privacy limits to locate individuals who have “skipped” their obligations.

Common Information Uncovered by Skip Tracing:

Addresses: Current and previous residences.
Phone Numbers: Mobile and landline.
Employment History: Current and past jobs.
Relatives & Associates: Contacts who might provide leads.
Business & Property Records: Ownership details.
Social Media Profiles: Locations, behaviors, and connections.
Vehicle Registrations: Details on owned vehicles.

Importance of Skip Tracing in Debt Collection:

When your debtor’s phone number is inactive or their mail is returned undeliverable, immediate skip tracing is critical. Every day delayed significantly reduces recovery odds:

After 90 days, recovery rates drop below 70%.
After 180 days, recoverability drops to around 50%.

Common Reasons Debtors Are Unreachable:

Changed phone number: Debtors often switch to mobile numbers without informing creditors.
Relocation: Due to job changes, divorce, or retirement, debtors move without updating creditors.
Intentional hiding: Debtors avoiding legal or financial obligations, making them extremely difficult to trace.

Why Let a Collection Agency Handle Skip Tracing?

Using a collection agency saves your business significant time, cost, and stress. Agencies have trained professionals using advanced databases, making their success rate notably higher than in-house efforts. The savings from employee hours and resources far outweigh the minimal cost of agency services.

Additional Insights:

Skip tracing can also uncover if debtors:

Declared bankruptcy
Are deceased
On active military duty
Regularly file lawsuits against collectors (a critical consideration for debt recovery)

Moreover, modern skip tracing includes an automated feature called “triggering,” notifying collectors instantly when new debtor information emerges.

Popular Skip-Tracing Providers:

USPS (basic address checks)
Accurint for Collections by LexisNexis
TransUnion’s TLOxp
Experian’s MetroNet
Equifax’s FirstSearch

Efficient skip tracing significantly increases debt recovery effectiveness, making it indispensable for creditors and collection agencies alike.

Video: What is skip tracing?

Top Excuses Debtors give during Collection Calls

Debtor excuses are the biggest hurdle in debt collection. Sometimes their claims may be genuine, but more often they are simply delay tactics to postpone or avoid making payment altogether.

An aggressive approach will force the debtor to hide things from you, lowering your chances of getting paid. Try to work with the debtor, rather than working against them.

Financial Problems	How to negotiate
• Job Loss. • Divorce. • I am waiting for my customers to pay me first. • Cash flow problem. • Spent money on a medical emergency. • Lost money in gambling. • No money to pay, no special reason. • Medical emergency expenses.	When does he/she expect to be employed again? Is the debtor receiving unemployment benefits? How are their other expenses being met? Understand the debtor’s situation and ask when he expects the situation to improve. Contact the debtor at a later date again. Maybe the debtor is more comfortable paying in installments or settling for a lesser amount.
Delay Tactic	How to negotiate
• Need a copy of the invoice or statement. • Prove me that I actually owe this amount. • Never received an invoice asking me to pay. • Check is in the mail. You will get it soon. • No time for this right now. I have other priorities. • Our accounting department works only 1 hour a day or once a month, please call during that time. Our accounting department sits elsewhere. • No time to go to the bank due to my work schedule.- Changing banks or checkbooks not received yet. • Signatory is not available. • Lost the bill. Can you send the invoice again? • Really, I haven’t paid it yet? Give me time to check my bank statement. • I know nothing about this. • Debtor returns the bill to the sender and tries to become untraceable. • I did not expect my bill to be that high. • Someone else handles my billing ( ok .. ask if they can add that person to this call now?)	Provide information/ documentation if the debtor had requested verification of the debt. This could be resending the invoice or documentation to prove that the debt is actually owed. Even better – fax or email it to them immediately while you have them on the phone. However, most of the time, debt collectors have to actually call the debtor on a later date/time that is convenient for the debtor, and then communicate that he has already been given enough time. An experienced debt collector knows how to work around these delay tactics. Ex: He may ask the debtor to give the check number and date when the check was written. The debtor will usually fumble badly if they are lying.
Dispute or Denial to pay	How to negotiate
• I do not owe anything • I will send you legal notice for harassing me. • Let’s go to the court. • Invoice is disputed. • Never received the goods or service. • Goods were defective, or service provided was bad. • I am being overcharged, or I did not expect my bill to be that high • My insurance company did not cover my entire bill as I thought. • Over my dead body. • Threats: Dude, I have connections; will have someone visit you !!	If the debtor continues to resist and there is adequate proof that the debtor owes the debt, it may be time to check with the attorneys if a legal suit is advisable. However, it is quite possible that the debtor really owns nothing. The data in your systems could be incorrect or outdated.
Other Reasons	How to negotiate
• Statute of limitations • Person you need to talk to is not here right now. • Bankruptcy • Debtor has expired • I have already paid. • Wrong number.	A debt collector needs to get the facts straight and get further information on the case. Take a call if further collection activity is even possible or not.
Possible Genuine Reasons	What to do?
• I am disabled and have no money. • I am an armed service member ( Military, Navy, Air-force, etc.) and am currently posted overseas.	Check with your supervisor if an asset check/search is advisable or not. Most companies will not do this unless the balance is very high. Service Members Civil Relief Act and Fair Debt Collection Practices for Servicemembers Act (HR 5003) give some extra rights to military personnel deployed overseas, ensuring their rights are not violated.

A debt collector should insist on proof or an explanation about what the debtor is saying. The debt collector may even give an option to the debtor to pay the outstanding amount in installments or renegotiate to settle the debt for a slightly lower amount ( provided they have authorization from their client to settle debts for that lower amount).

A Debt Collector should deal with great patience yet sound confident and assertive. Using abusive or unprofessional language is not only illegal; it can also take the debtor to a point where he becomes completely non-cooperative.

It is very important to hire a good Collection Agency which employs top-of-the-line debt collectors, even if they charge slightly more than other agencies. Not every debt collector can make a perfect collections call. They get better and groomed over time.

Consumer vs Commercial Collection Agency : Differences

Aspect	Commercial Collection Agency	Consumer Collection Agency
Type of Debt	Business-to-Business (B2B)	Business-to-Consumer (B2C)
Debtor Profile	Businesses, Companies, Corporations	Individual consumers
Average Debt Amount	Higher amounts (often thousands to millions)	Lower amounts (usually hundreds to thousands)
Collection Approach	Professional, negotiation-based, relationship-focused	Often more regulated, consumer protection-focused
Governing Regulations	Primarily UCC (Uniform Commercial Code)	FDCPA, FCRA, TCPA, CFPB
Reporting to Credit Bureaus	Less common, typically commercial bureaus (D&B, Experian Business)	Common, personal credit bureaus (Experian, Equifax, TransUnion)
Legal Action Frequency	Higher likelihood due to higher amounts	Lower likelihood, reserved for significant cases
Collection Methods	Negotiations, structured payments, relationship maintenance	Calls, letters, credit bureau reporting, sometimes legal threats
Emotional Aspect	Lower, usually professional relationship	Higher, personal and sensitive situations
Account Complexity	Typically more complex (contracts, invoices, disputes)	Usually simpler (credit cards, medical bills, loans)
Settlement Flexibility	Higher, frequent negotiation and settlements	Moderate, subject to stricter legal constraints
Impact of Nonpayment	Business disruptions, cash flow issues	Credit score impact, personal financial distress
Cost Structure	Often contingency-based (15%-50%)	Typically contingency-based (20%-50%), occasionally fixed fee for smaller debts

Bankruptcy laws are different for individuals and companies.
The way Credit Check is run on individuals vs companies is vastly different.
A good commercial collection agency would likely be registered with the International Association of Commercial Collectors (IACC). Collection agencies dealing with consumer debt are affiliated with the Association of Credit Collection Professionals (ACA)

Need a collection agency with 20 years of experience? Contact Us

One may wonder, when a “debt is a debt, ” why do we classify it as a Commercial or a Consumer debt? When it comes to debt collections, they are treated quite differently, primarily due to the difference in debt recovery laws instituted by the US Government.

A commercial debt collection agency treats every case differently. Scenarios change depending on the type of business. For example, the approach involved in collecting money from a hospital will differ from that of a car dealership. Collection Agencies maintain a delicate balance between recovering the debt and maintaining good business terms between the parties. The average balance of commercial accounts is generally much higher when compared to consumer debts. Commercial collection agencies are highly specialized in their field.

A 30-day dispute period does not apply to Commercial Collections
When the debtor is a consumer, a collection agency has to provide a 30-day dispute period regarding the debt. During the dispute period, a consumer can also ask the Collection Agency to prove that he indeed owns the debt (also called as the “verification of debt”). However, a commercial collection agency can start the recovery process right away.

The commission fee is lower for Commercial Collections:
The contingency fees of a commercial collection agency vary from 10% to 50%. For accounts over $500K you can negotiate a collection fee of about 10%. For accounts about $50K, the fee is around 20%; for accounts lower than $1K, it’s around 50%. It is always around 35% to 50% for Consumer Collections and averages around 40%. Even with lower contingency fees, a Commercial Agency can make more money per case due to higher balances. If a commercial debt is over one year, 5% extra fees may be charged.

What is a Debt Collection Agency?

Collection Agency is an organization that attempts to collect money from individuals (or businesses) who have not paid their bills on time. Accounts are typically transferred to them after they have been over 60-90 days past due.

What kind of debt can be assigned to a debt collection agency?

1. Unpaid medical bills of a doctor or hospital.
2. Services or products which were sold but were not fully paid.
3. Mortgage debt, credit cards bill or other forms of bank delinquencies.
4. Unpaid phone bills, gym bills or other recurring membership fees.
5. Unpaid installments of car loan, student loan or bank loans.
6. Other interest and penalties.

Overall, you can initiate collection activity for almost any past due account for which you are legally entitled to get paid for and have sufficient proof to back your claim.

Example

Let us assume, you are a ‘dentist’, and your patient agreed to pay for your services in 5 installments. But the patient has stopped paying after the 2nd installment. Your gentle reminders to the patient have not resulted in any success. Would you write off the unpaid amount or would you go after the patient by trying harsher measures? It is advisable to avoid both. Taking intensive measures could even result in counterproductive action against you.

Now you approach a Collection Agency to collect your past due amount from your patient (or say, Debtor). Depending on the type of service you select, a Collection agency will attempt to collect the outstanding debt and charge you a fixed fee or the percentage of the debt collected. (Read: Services that Collection Agencies offer).

Should I try to collect the debt myself?

Sure, if your staff has time to do a few polite reminder calls or send bills to the debtor, and then time to do the follow-up for the same, try it out. But be extremely careful, respectful, polite and patient during your communication with the debtor. Most likely you will realize that too many man-hours are being spent and your staff is probably trained adequately to handle these situations.

Collection agencies are not only experts in collecting debt, the moment your debtors get to know that a professional debt collection agency is involved, but they are also more inclined to pay off the outstanding debt at the earliest.

Documents to prove you legally own the debt:

There are thousands of collection agencies in the United States, big and small, and each has a different way of working and the services they offer. In most cases, the collection agency will not ask you to submit all proof (or paperwork) of the outstanding debt initially, they will ask you to provide that if and when needed. For example: If the debtor disputes the charges. A collection agency will normally start the collection activity by asking only the basic information like Debtor Name, address, phone, amount due, bill/reference number, date of debt and sometimes debtor’s SSN. At all times you should maintain sufficient proof of the outstanding debt.

Additional information:

As mentioned earlier, collection agencies are experts in collecting debt, that’s what they do all year long. They ensure that the demand notices being sent out with maximum impact (collection letters, collection calls or legal notices), and that debt collection laws are followed, it includes “Fair debt collection practices act” specified by each state.

Before a collection agency signs you up as a client or starts accepting your past due accounts for collections, they will ask you to sign a legal agreement (on paper or an online contract). This agreement authorizes them to start collection activity on your behalf. Their agreement also includes important disclaimers and some standard legal stuff.

It is normally advisable to start collection activity after it has been over 60 days from the Date of debt, or that date when the payment was due. The sooner you submit an account for collections, the chances of recovering your money are significantly higher.

Defaulted debts are often reported on the debtor’s credit history, and it stays there for several years.

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