State-by-State Statute of Limitations on Debts

Statute of Limitations on Debt Collection is the amount of time that lenders have to collect their debts by suing you in court and by other legal methods. Once the statute of limitations period is over, the lenders cannot sue you in court. The following chart is a state-by-state listing of the Statute of Limitations on Debt:

State	Oral	Written	Promissory	Open-ended Accounts	State Statute: Open Accounts
AL	6	6	6	3	§6-2-37
AR	5	5	5	3	§16-56-105
AK	6	6	3	3	§09.10.053
AZ	3	6	6	3	§12-543
CA	2	4	4	4	§337
CO	6	6	6	3	§13-80-101
CT	3	6	6	3	§52-581
DE	3	3	3	4	§2-725
DC	3	3	3	3	§12-301
FL	4	5	5	4	§95.11
GA	4	6	6	6 **	§9-3-25
HI	6	6	6	6	HRS 657-1(4)
IA	5	10	5	5	§614.5
ID	4	5	5	4	§5-222
IL	5	10	10	5	735 ILCS 5/13-205
IN	6	10	10	6	§34-11-2
KS	3	6	5	3	§84-3-118
KY	5	15	15	5	§413.120
LA	10	10	10	3	§3-118
ME	6	6	6	6	§5-511
MD	3	3	6	3	§5-101
MA	6	6	6	6	c.260, §2
MI	6	6	6	6	§600.5807
MN	6	6	6	6	§541.05
MS	3	3	3	3	§15-1-29
MO	5	10	10	5	§516.120
MT	3	8	8	5	27-2-202
NC	3	3	5	3	§1-52(1)
ND	6	6	6	6	28-01-16
NE	4	5	5	4	§25-206
NH	3	3	6	3	382-A:3-118
NJ	6	6	6	3	25:1-5
NM	4	6	6	4	§37-1-4
NV	4	6	3	4	NRS 11.190
NY	6	6	6	6	§2-213
OH	6	15	15	6	§2305.07
OK	3	5	5	3	§12-3-95
OR	6	6	6	6	§12.080
PA	4	4	4	4	§5525
RI	10	5	6	4	§6A-2-725
SC	3	3	3	3	SEC 15-3-530
SD	6	6	6	6	§15-2-13
TN	6	6	6	3	28-3-105
TX	4	4	4	4	§16.004
UT	4	6	6	4	78-12-25
VA	3	5	6	3	8.01-246
VT	6	6	5	3	§3-118
WA	3	6	6	3	RCW 4.16.080
WI	6	6	10	6	893.43
WV	5	10	6	5	§55-2-6
WY	8	10	10	8	§1-3-102

What is a collection agency?

A collection agency is a business that pursues payments on debts owed by individuals or businesses. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed. Some agencies, sometimes referred to as "debt buyers", purchase debts from creditors for a fraction of the value of the debt and pursue the debtor for the full balance.

Creditors typically send debts to a collection agency in order to remove them from their accounts receivable records; the difference between the amount collected and the full value of the debt is then written off as a loss.

In many countries, collection agencies are governed by laws that prohibit certain abusive practices. Failure to adhere to such laws may result in lawsuits or government regulatory actions.

First Party Collection Agencies

Some agencies are departments or subsidiaries of the company that owns the original debt. First party agencies typically get involved earlier in the debt collection process and have a greater incentive to try to maintain a constructive customer relationship.

Because they are a part of the original creditor, first party agencies are not subject to the Fair Debt Collection Practices Act which governs third party collection agencies.

These agencies are called "first party" because they are part of the first party to the contract (i.e. the creditor). The second party is the consumer (or debtor).

Typically, most creditors will retain accounts with first party agencies for a period of around 6 months before the debt is written off and passed to a Third Party Agency.

Third Party Collection Agencies

The term collection agency is usually applied to third-party agencies, called such because they were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual service level agreement (SLA) that exists between the creditor and the collection agency. The agency will then take a percentage of the debt that is successfully collected; sometimes known in the industry as the "Pot Fee" or potential fee upon successful collection. This does not necessarily have to be upon collection of the full balance and very often this fee is paid by the creditor if they cancel collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor (often known as a "No Collection - No Fee" basis). Depending on the type of debt the fee ranges from 10% to 50% (though more typically the fee is 15% to 35%).

Some agencies offer a flat fee, typically $10.00, "pre-collection" or "soft collection" service. The service sends a series of increasingly urgent letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and negative credit report. Depending on the terms of the SLA, these accounts may revert to "hard collection" status at the agency's regular rates if the debtor does not respond.

In the United States, consumer third-party agencies are subject to the Fair Debt Collection Practices Act of 1977 (FDCPA). This federal law is administered by the Federal Trade Commission or FTC. This act limits the hours during which the agency may call the debtor and prohibits communication of the debt to a third party. It also prohibits false, deceptive or misleading representations, and prohibits the agency from making threats of actions the agency cannot lawfully or does not intend to take.

Bankruptcy and Collection Agents Facts

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

Once a collection agency is informed of the bankruptcy filing and provided with the basic information about the case, such as the chapter filed, the date filed, and the case number, it must take no further action, unless it obtains bankruptcy court authority to proceed with its collection efforts, and the court's granting of such authority would be very rare.

The IRS and Collection Agencies

the IRS is no longer using private collection agencies. IRS contracts with private debt collection agencies to go after delinquent taxpayers expired Friday, March 6, 2009. In deciding not to renew them, IRS Commissioner Doug Shulman said he concluded after a monthlong review that tax collection could best be done by government workers.

The Internal Revenue Service's decision to quit using debt collectors to dun delinquent taxpayers was celebrated by public employee unions as a pendulum shift after watching the Bush administration often opt for private contractors over federal workers to deliver government services.

The IRS program was a small one, bringing in a little more than $80 million since its inception in 2006. But it represented an ideological toehold for conservatives who believe that private companies are more efficient than government agencies.

It was an ideology embraced by former President George W. Bush, who famously — and unsuccessfully — toyed with the idea of partially privatizing Social Security.

The agency had been turning over to private debt collectors some delinquency cases, often in the $5,000 to $10,000 range, that the IRS lacked the manpower to pursue. The program cost about $7.6 million a year to administer, and private contractors were allowed to keep about a quarter of the taxes they collected.

The program brought in more money than it cost to operate, but it had become a political headache for the IRS. The union representing IRS workers and the National Taxpayer Advocate, an independent ombudsman within the agency, opposed the program, as did some Democrats in Congress. Other powerful lawmakers from both political parties supported it.

Do's and Do not's on Paying a Collection Agency

There is a right way and a wrong way to pay them.

• If you are trying to accomplish a goal such as buying a home and a condition of a loan requires a collection account to be paid off and you do not wish to postpone the transaction be careful in how you handle it.

• You may be doing the right thing and it cause you more problems than it is worth.

• Don't give a collection agency your credit or debit card number or checking information over the phone. There are to many stories on the Internet where people have paid collection agencies this way and dishonest collection agency personnel misuse this information.

• The best way to pay them is with a money order or through a third party such as a closing agent or attorney.

• If they insist you use quick collect or money gram chances are you are being scammed plus the fees for these services are draconian. Buy a money order and overnight it to a specific contact at a collection agency the cost of this should be less.

• Do make them put it in writing that you will never hear about this debt again especially if it is a reduced payoff!!

• Many times collection agencies will offer you a reduce payoff on a debt only to resell the portion you did not pay. There are many collection agencies that are in the business of buying old debts and "deficiencies" like this get packaged into portfolios of junk debt.

• A debt that you clear today may pop up on you years down the road.

• Do ask them to delete the trade line. You may be able to accomplish this towards the end of the month when they are trying to close out their numbers. You have always heard that the best day to get a good deal on a car is the last day of the month. It is the same with a collection agency.

• Because you are not going to give them financial information over the phone start a few days early. If they agree to this make them put it in writing!!

• Never take anything they say over the phone as reliable it bears repeating. Do not give financial information over the phone and make them put everything in writing!!

Stop Collection Agents