Many of us are familiar with the term “Statute of Limitations”, but we may not be aware of another term called “time-barred” debt. This refers to a debt that has passed the statute of limitations period for the specific state in which the debt was incurred. Statutes of limitations vary from state to state.
In California, the Statute of limitations for verbal contracts is two years and for written contracts it is four years. What this means is if your patient or customer has signed a financial agreement to pay you for services rendered, you will have four years to collect this debt through legal measures. Basically, this means you could sue your customer. After this time period has lapsed, the debt becomes what is referred to as a time-barred debt.
There is some difference in opinion as to whether a time-barred debt can still be collected by a Collection Agency. There are differences on this issue from state-to-state. Some states have even enacted laws regulating the collection of these debts. However, California places no restriction on collecting time-barred debts. This means that a debt could be eight years old and a collection agency could still try to collect it. Most collection agencies, including TSC, will not accept debts older than the statute of limitations.
TSC has chosen not to accept accounts older than the statute of limitations for a number of reasons. One of the most significant is that our collection process alerts the debtor that if they fail to pay, their account may be reported to the credit bureaus and also our client may wish to pursue legal means to recover the debt. If we were to tell the debtor that our client may choose to pursue legal means to recover the debt and the account was a time-barred debt, this would be a violation of both the FDCPA and the State Rosenthal Collection Practices Act.
In addition, debts this old are much less collectible, as consumers have moved, addresses have changed and telephone numbers are no longer in service. Also the old adage, “out-of-sight, out-of-mind”, really comes into play. Many consumers do not even remember a debt that old and especially not any specifics. On top of all this, collecting on old debts can create a lot of ill will towards you, our client. When an account is this old, many consumers question the validity of the bill and wonder why it has taken so long to be sent to collections. Also, in order to comply with provisions of the FDCPA, it may be necessary for us to validate the debt and you, our client, will need to be able to provide us with an accurate detailed accounting of the charges due on the account and financial agreements signed by the consumer.
So, in summary, in the state of California, a debt doesn’t simply go away after four years. The debt just becomes much more difficult to collect, as any legal means for recovery are no longer available to the creditor. This is another reason why it is so important that internal accounts receivable procedures are in place to assure that your past due accounts are referred to your collection agency as soon as possible.