Commercial Collections Blog

Restarting the Clock on an Old Debt

Restarting The Clock of Old Debt

As discussed in previous articles, creditors seeking to collect on old accounts that are long past due must collect within their state’s defined statute of limitations. Failing to recover unpaid bills before the statute of limitations expires means sacrificing any legal recourse to sue the borrower/debtor to force them to pay what they owe. However, the statute of limitations is not the sole reason for contacting delinquent and past due account holders regarding their unpaid debt. There is also a way to “restart the clock” on old debts that reset the amount of time a creditor has to collect a debt before it exceeds the statute of limitations.

Also known as re-aging a debt, this exception allows creditors to pursue unpaid debts through litigation for two reasons:

  1. the debtor acknowledges that their expired debt is legitimately theirs or they make a payment on that expired debt. This contact with the borrower or
  2. debtor is what effectively re-ages the debt, as any contact with acknowledgment legally resets the statute of limitations on the outstanding balance owed.

Delinquent accounts can then be compelled to pay the debt in full, reach a settlement agreement, or attempt to evade further contact and/or litigation.

Re-aging a debt puts a collection agency or organization attempting to collect on a debt in a unique position, as they will still have to ensure that the debt is paid or settled even after it is re-aged. The difference is that now they have legal recourse to pursue that debt once again. The problem with re-aging though is that numerous unethical bill collectors may illegally re-age debt. This is done by reporting old debts as unpaid to credit agencies without any idea as to whether or not the debt is within the statute of limitations. Illegal re-aging is a common practice after purchasing old debts in a secondary debt market for pennies on the dollar.

Here’s the next phase of this scam: the person who originally owed the debt that is now expired, was settled, or was discharged as part of a bankruptcy sees the re-reported debt pop up on their credit report. They must contact the credit reporting agency to dispute the debt as inaccurate. The agency goes back to the debt collector and requests proof that the debt is legitimate, and when the unethical debt collector has no evidence or cannot show that the debt is legitimate or has been re-aged, it is removed from the individual in question’s credit report.

While waiting for the debt to be disputed, however, these debt collectors will try any and all means to get borrowers or debtors to acknowledge that they still owe the debt, or they will attempt to obtain a small payment. Paying these unethical bill collectors is a formal acknowledgment of the debt’s legitimacy, and the re-aging of that debt is now valid. That debt collector can now legally sue the debtor/borrower to repay what they owed the original creditor.

How does this affect your business trying to collect on legitimate debts outstanding or accounts receivable? Quite simply, because of the number of debt scams running every day on any number of businesses, your business must now ensure that they can prove the legitimacy of the debt should it be disputed. That makes collecting payment on those legitimate debts far more difficult because a delinquent account doesn’t want to accidentally accept responsibility for a debt they potentially no longer owe.

The good news is that there is an upside to re-aging a debt: when a delinquent account works with their creditor to make a debt repayment plan, that creditor often agrees to stop reporting your account as delinquent. This re-ages the debt so that it shows as current on a credit report, often improving creditworthiness in the eyes of other lenders and financial institutions.

Due to the hassles and difficulties caused by unethical debt collectors, it is vital that you make sure to collect on past due accounts receivable as soon as they reach past due status. If the debt exceeds the statute of limitations for your state, you will no longer be able to recover the debt through litigation.

This means that your last resort is to attempt to get the delinquent account to acknowledge the debt and re-age it, or collect some of the amount owed to achieve the same effect. The trouble is that if that delinquent account has no intention of repaying the full amount and they are aware that the debt is outside of the statute of limitations, your accounts receivable department is going to find it very difficult to recover any of that amount outstanding.

Pursuing past due accounts right away, making payment arrangements, and pursuing delinquent accounts aggressively for repayment is crucial to maintaining strong positive cash flow. If your Accounts Receivable is not up to the task, you should give serious thought to engaging the services of a third party collection agency to handle delinquent accounts before they become entangled in a cycle of expiring due to the statute of limitations and then being re-aged only to lapse again. Protect your business and your financials, and keep a close eye on those unpaid accounts.