Navigating the Complex World of Old Debt Collection

Collecting old debt from borrowers can be challenging and frustrating for creditors. The older the debt, the harder it is to manage. There are several reasons for this difficulty, but it can be simplified down to three issues: 1. the statute of limitations, 2. the borrower's financial situation, and 3. the quality of the original credit agreement. 

Continue reading to learn how to overcome these challenges, what techniques can keep creditors ahead of the game, and some tools to gain critical information on problematic customers. 

How Long Can You Collect on Old Debt?

No set time will completely prevent lenders from collecting outstanding debt, but usually, when the statute of limitation (the maximum time after an event that legal proceedings based on that event may be initiated) ends, so does the collection process. Once the statute of limitations has expired, the debt is considered "time-barred," and the creditor is no longer able to sue the borrower to collect the debt. The length of time for the statute of limitations varies by state and by type of debt, but it typically ranges from three to six years.

It's important to note that it is possible to restart the clock on old debt and prevent it from being "time-barred." "Restarting the clock" on senior debt refers to resetting the statute of limitations that applies to the debt. Here's how creditors may be able to extend their time frame and collect the money they are owed:

1. Making a Payment: If a debtor makes even a small payment towards the old debt, it can restart the statute of limitations in some jurisdictions. This often takes the form of a "good faith" payment.
2. Entering into a Payment Plan: Try to restructure the agreement and find a plan that can work better for both parties. Once a new plan has been agreed on, this can often be viewed as acknowledging the debt.
3. Making a Written Agreement: If a debtor acknowledges the debt in writing and promises to pay, it could restart the statute of limitations.
4. Making a Verbal Agreement (in some states): In a few states, even verbally acknowledging the debt over the phone can restart the clock. However, this is challenging for a debt collector to prove unless the conversation is recorded. Know which states have "one-party consent" laws so you don't have any legal issues.
5. Legal Action: If a creditor or collector files a lawsuit before the statute of limitations expires, this action can toll the statute, effectively pausing it while the litigation is ongoing.

 Additional Important Tips for Lenders

1. Remain Compliant: The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using deceptive practices to collect a debt. Understand how best to proceed with collecting debt by complying with the FDCPA.
2. Be Informed About Local Laws: Statute of limitations periods vary by state and type of debt. It's vital to know the relevant laws in your jurisdiction.
3. Seek Legal Advice: If a debt collector is pursuing old debt, it may be beneficial to consult with an attorney who specializes in consumer rights.

Be on the Lookout for Zombie Debt

Debtors should be cautious when dealing with debt collectors, especially regarding old or "zombie" debts. Some unscrupulous collectors buy old debts for pennies on the dollar and then attempt to collect, sometimes even after the statute of limitations has expired. They may not always inform the debtor that the debt is time-barred and may try to get the debtor to restart the clock inadvertently.

Can You Collect Debt From All Borrowers?

The borrower's financial situation is another critical factor that affects the ability to collect old debt. If the borrower is experiencing financial hardship, they may be unable to repay the debt, regardless of the creditor's efforts to organize. Sometimes, the borrower may have declared bankruptcy, making it difficult or nearly impossible for the creditor to collect the debt.

Poorly Drafted/Outdated Credit Agreement

The quality of the original credit agreement can also impact the difficulty of collecting old debt. If the credit agreement is complete and well-drafted, it may be easier for the creditor to prove the debt's validity in court. Additionally, if the creditor needs proper documentation of the debt, such as a signed contract or invoices, it can be challenging to collect the debt. 

Alternate Solutions for Collecting Debt

Despite these challenges, there are some steps that creditors can take to increase their chances of collecting old debt. An effective way to collect old debt is to work with a professional debt collection agency. These agencies have the expertise and resources to locate borrowers and pursue collection efforts on behalf of the creditor. But there are also downsides to using these services. 

Another option for creditors is to sell the old debt to a debt buyer. Debt buyers purchase old debts for a fraction of the face value and then attempt to collect the debt themselves. While this option may not result in the total amount of the debt being recovered, it can provide the creditor with some financial relief and allow them to focus on other aspects of their business.

Tools for YOU to Succeed

It's important to realize that while certain debts can be challenging to collect, there are tools that can keep you and your team ahead of the game. MicroBilt offers a variety of products aimed at providing your in-house team with the information they need to collect efficiently and with as little hassle as possible. Whether it's skip tracing or monitoring, we offer state-of-the-art solutions to automate and simplify the process. 

Learn more about our tools here and find out how MicroBilt can save time and money today.