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May 15, 2023 Collections

When Can a Debt No Longer Be Collected?

When someone makes a purchase with a credit card or gets a loan, they owe the debt. A person must pay their debts or face consequences. Sometimes, debts are outstanding for long periods of time. You may wonder, when can a debt no longer be collected? New Jersey law provides some guidelines, but you will need to understand more about debt in order to apply the law. 

What is the Statute of Limitations on Debt Collection?

Each state has its own laws that govern debt collection. A statute of limitations is a law that governs contracts. There are four main types of contracts, including oral, written, promissory notes, and open-ended accounts. New Jersey law states that the statute of limitations that applies to all four types of contracts is generally six years. After six years have gone by without any attempt to collect a debt on the part of the creditor, the creditor can no longer seek legal resolution from the court. There are exceptions that apply to auto loans, contracts between merchants, and more.

Statute of Limitations on Types of Debt

Sales between merchants are also called business-to-business sales. These contracts are covered by the New Jersey Commercial Code. Generally, the law allows the collection of debts on B2B contracts for a period of four years. It is important to note that the four-year period may be modified as part of the contract between parties. Therefore, the length of time to collect a debt in a contract will override the laws, as long as it is in the contract and both parties agree. Auto loans also have a statute of limitations period of four years. 

Time limit for collection on real estate is 20 years, with a judgment that also allows for up to 20 years. For demand notes, when a demand is made, the limit is six years from the date of demand. When no demand is made, the collection time limit is 10 years. Unaccepted drafts have an expiration of 10 years from the date of the draft or three years from the date the draft was dishonored, whichever is first. There are other exceptions that could apply based on the type of debt. 

Statute of Limitations on Judgments

A creditor may go to court to seek a judgment against a debtor who owes money. The judgment must be obtained before the statute of limitations runs out. A court judgment allows a debtor to take further legal steps to collect a debt. If the court grants a judgment, the creditor will be able to take actions such as garnish wages, repossess property, or put a hold on bank accounts. Once a creditor has a judgment, they are able to perform collection activities for a longer period of time. However, creditors must follow state and federal laws, including the Federal Fair Debt Collection Practices Act. The Federal Fair Debt Collection Practices Act, part of the Federal Trade Commission (FTC), sets forth rules that a creditor must follow when they collect debts they are owed. 

Sometimes a debt can be renewed. That means that the statute of limitations clock will restart on a debt. For example, when a debtor acknowledges a debt that is owed or makes a payment on an old debt, it could be an indication that they agree to pay. This could trigger a new period for the statute of limitations to apply. It is advisable to consult with an attorney with experience working with collections to determine the proper date to use for purposes of legal collection activities. 

When Can a Debt No Longer Be Collected?

A debt is a debt, and the debtor owes it until they pay it. A creditor or collection company may take steps to collect a debt at any time as long as they follow the law. Although the statute of limitations on a debt may have run out, the debtor still owes it, and the creditor may still collect it. The creditor would not be able to take legal action to enforce debt payment, however, unless a judgment is in place. A creditor cannot sue or threaten to sue a creditor once the statute of limitations has passed without a judgment in place. 

The length of time that a creditor may take to obtain a judgment against a debtor varies based on the type of debt. It is usually best for a creditor to seek legal guidance before they take steps to collect a debt. An attorney with experience in debt collections knows the latest laws that apply and will provide you with assistance in understanding your options for collecting money that is owed to you. To learn more about debt collection time limits, contact Snellings Law, LLC for more information.