Debt collection is a normal part of doing business. It is also a big business in and of itself. When customers do not pay their bills, some companies attempt to collect in-house. Others turn their debts over to professional collection agencies who either work on contingency or purchase the debts outright. But how long can businesses and collection agencies attempt to collect?
The answer depends on whether you are talking about general debt collection or court judgments. As far as general debt collection is concerned, there are not any federal or state laws placing time limits on collection. Judgments are different. They are governed by statutes of limitations. But even such statutes do not prevent judgments from being renewed.
As Long as Debts Are Outstanding
Federal and state laws regulate how creditors and collection agencies can go about collecting on bad debts. There are rules governing everything from making phone calls to showing up at a debtor’s house. As far as time limits are concerned, there really are none. Businesses can continue attempting to collect for as long as debts remain outstanding.
Consumers may not know this. And when this is the case, it may explain why some simply refuse to cooperate. They may be operating under the mistaken assumption that, if they can avoid paying for a certain length of time, the debt will simply go away.
As a business owner, you can pursue bad debts indefinitely. The question is whether doing so makes sense. Is it worth trying to collect on a debt that is several years old? Moreover, how much time and money has the company already spent on collection?
Limits on Judgments
A judgment is distinctly different from general debt in that it is entered against a debtor as a result of civil litigation. Judgments essentially compel debtors to pay what they owe. However, most states limit judgment enforcement to a period of between seven and 10 years.
Salt Lake City’s Judgment Collectors says the statute of limitations in Utah is eight years. But like most other states, Utah allows for judgment renewal. This simply means that a creditor can renew an outstanding judgment for another eight years if it remains unpaid after the first eight.
With this in mind, judgments could be ongoing in perpetuity. As long as the creditor continues to renew prior to the current expiration date, a judgment can continue for as long as the debtor still owes.
It’s a Time and Money Question
For many businesses, collecting on bad judgments really is a time and money question. Attempting to collect in-house requires businesses to dedicate some of their resources to tasks that probably aren’t directly related to serving customers. Trying to collect on a bad debt might be no big deal for a few months or so. But beyond that, is a company wasting resources by continuing to attempt to collect in-house?
Businesses can reach a point of diminished returns. This is to say that the amount of money they stand to gain through successful collection is less than what they have already spent attempting to collect. It then becomes a question of how much the company is willing to settle for.
In some cases, businesses decide to cut their losses and write off the debt. In other cases, they will sell the debt to collection agencies. The one thing businesses all have in common is the desire to get paid. It is all well and good that the law doesn’t limit how long they can try to collect. But if collection efforts are never successful, what is ultimately gained?