How long can companies try to collect debt

An unsecured creditor is one to whom no collateral has been pledged and who hasn't filed a lien. Typically, unsecured debts include credit card charges and amounts your business owes for inventory, office supplies, furnishings, rent, and advertising, as well as what's owed for services such as maintenance, equipment repair, or professional advice.

Many businesses owe secured debts—businesses typically pledge collateral for credit lines, and business owners often pledge their personal property for business debts. Let's take a look at how quickly lenders can call in or foreclose on collateral when a secured debt is not paid. As you probably know, if you miss a payment or two on your car loan and, as is typical, the loan was used to buy the car and is secured by the car , the lender has the legal right to physically repossess the car and sell it to recover the money you owe, plus the costs of the sale and attorney's fees.

To do this, the lender doesn't have to get permission or a court judgment. Under the terms of the contract you signed with the lender, a repo man can simply reclaim the lender's property. In many states, the lender doesn't have to give you notice of the repossession; you will just wake up and find your car gone.

When all is said and done, you will still owe the difference between what the lender sells the car for and what you owed on the loan, called a "deficiency. Cars are the most commonly repossessed type of property, but if you borrowed money to buy business equipment or machines and used the purchased equipment as security, the creditor will have the same repossession rights.

Also, some department store credit cards provide that the creditor automatically takes a security interest in the property you buy, so if you don't pay the bill, the creditor might try to repossess the property. However, because creditors must get a court order to enter your house or business, repossession of property other than vehicles is rare.

Similarly, with leased vehicles or business equipment, if you miss a lease payment, the leased property can usually be immediately reclaimed without a court order. If you have a mortgage or deed of trust on your house, or an open home equity line of credit, you must make payments on time to keep the house. If you don't, the lender can and probably will foreclose on your house, because it is collateral for your debt.

But foreclosures are not as quick as vehicle repossessions. In half of the states a lender has to go to court before foreclosing, and in the other half, advance notice is required from the lender. Similarly, if you pledge your house as collateral for a business loan or line of credit and you default on that loan, the lender can foreclose on your house.

In this situation, the lender must always file a foreclosure action in court, no matter what state you're in. To avoid having the lender foreclose, you must either repay the debt or, if the debt is more than your equity in the house, at least pay the lender that amount so that it no longer has a reason to foreclose.

The foreclosure process works differently in different states. In some states, the lender must file a lawsuit to foreclose on a house called judicial foreclosure. In others, it can foreclose on property without going to court nonjudicial foreclosure. A judicial foreclosure typically takes several months longer than a nonjudicial foreclosure though in California a nonjudicial foreclosure can take a year or more , giving you time to save some money and, if necessary, find a new place to live.

If you're behind on your mortgage, you might be able to negotiate a loan modification with your lender. For example, the lender might agree to add your missed payments to your loan balance, to stretch out your loan over a longer term, or to convert an adjustable rate mortgage to a fixed-rate one.

Your other options are selling your home for less than you owe called a short sale , returning the deed to the lender called a deed in lieu of foreclosure , or refinancing through the Federal Housing Administration FHA or the Homeowner Affordability and Stability Plan.

For up-to-date information about your options if you are facing foreclosure, see The Foreclosure Survival Guide , by Stephen Elias Nolo. Filing for bankruptcy can delay foreclosure. When you file for bankruptcy, all creditors, including mortgage lenders, must cease collection activities and foreclosures. However, the lender can ask the bankruptcy court for permission to proceed with a foreclosure if you're behind on your payments, so a bankruptcy may delay a foreclosure only a couple of months.

For more on bankruptcy in general, see Nolo's Bankruptcy Center. Unsecured creditors such as credit card companies and most trade creditors must first sue you and win a money judgment against you before they grab your income and property. This is true whether you are personally liable for the debt as is the case for sole proprietors and partners, or because you signed a personal guarantee for your corporation or LLC or whether only your corporation or LLC is liable for the debt.

Learn whether you're personally liable to pay your business's debts. Typically, however, before seriously considering a lawsuit, a creditor will try to collect the debt for several months and then turn it over to a collection attorney or agency, which will restart the process.

In some instances, the creditor will conclude that you don't have enough property that can easily be grabbed to pay off the judgment, and won't bother suing. For instance, say your house is worth less than you owe on your mortgage, meaning that there is no equity in it for creditors to take. Also suppose that your consignment shop has few business assets and is doing so poorly that you don't anticipate having more than a few dollars of steady income that a creditor could grab by ordering the sheriff or marshal to take money from the business premises.

Your creditors, or any collection attorney or agency your debt is turned over to, may not sue you because they know it's unlikely they could collect the money judgment. That's called being "judgment proof.

Instead, the creditor may simply write off your debt and treat it as a deductible business loss for income tax purposes. Typically, in five or six years, depending on your state's statute of limitations, the debt will become legally uncollectible. Only a few states, such as Kentucky, Louisiana, Ohio, and Rhode Island, have longer statutes of limitation, up to ten or 15 years.

However, you can expect to be sued if there is significant money at stake and you have valuable personal or business assets or just business assets, if your business is a corporation or LLC —or if the creditor expects you to acquire significant assets in the future.

For instance, if you are a sole proprietor and have an advanced degree, your creditor might assume you'll eventually make a decent salary and will sue you now—and just wait for you to make some income.

In many states, a court judgment can be collected for at least ten years. What does a creditor think is worth suing for? Significant amounts of cash or accounts receivable, valuable business equipment and property, and, if you're personally liable for a debt, valuable personal assets such as jewelry, fine art, collectibles, antiques, motorcycles, expensive bicycles, boats, or a vacation house.

Don't try to hide assets. Sometimes, out of desperation, a business owner tries to protect personal or business assets by giving them to friends and relatives or otherwise trying to hide them from creditors. The story, all names, characters, and incidents portrayed in this video are fictitious.

No identification with actual persons living or deceased , places, buildings, and products is intended or should be inferred. Debt collectors can generally contact you to discuss a debt and to ask for repayment but in doing this they should take your personal and financial situation into account, including your ability to make repayments.

A debt collector should only contact you when it is necessary to do so and when the contact is made for a reasonable purpose. As a guide, if contact is necessary, it should be limited unless you request or agree otherwise to:.

Generally, visits to your home or another agreed location should only take place if there is no other way the debt collector can make effective contact with you, or if you ask for or agree to a visit. If repayment arrangements can be worked out over the phone or by letter, then face-to-face contact should not be necessary. Debt collectors must protect your personal information and the personal information of third parties.

Contact the Office of the Privacy Commissioner if you believe that a debt collector or creditor has breached privacy laws. If debt collectors are in breach of what they can do outlined above , or you are being harassed or intimidated by a debt collector, call the National Debt Helpline on for free and confidential advice or make a consumer complaint. Make sure you respond in writing to dispute the debt.

If you don't, the debt collector may keep trying to collect the debt from you and may even end up suing you for payment. Within five days after a debt collector first contacts you, it must send you a written notice, called a "validation notice," that tells you 1 the amount it thinks you owe, 2 the name of the creditor, and 3 how to dispute the debt in writing. Don't give a debt collector any personal or financial information until it sends you this validation notice—it may be a scam.

Make sure you dispute the debt in writing within 30 days of when the debt collector first contacted you. If you do so, the debt collector must stop trying to collect the debt until it can show you verification of the debt. You should dispute a debt in writing if:. Send the dispute letter by certified mail with a return receipt, and keep a copy of the letter and receipt. For more information, see the FTC's "Don't recognize that debt?

Here's what to do". Debt collectors cannot harass or abuse you. They cannot swear, threaten to illegally harm you or your property, threaten you with illegal actions, or falsely threaten you with actions they do not intend to take.

They also cannot make repeated calls over a short period to annoy or harass you. Debt collectors cannot make false or misleading statements. For example, they cannot lie about the debt they are collecting or the fact that they are trying to collect debt, and they cannot use words or symbols that falsely make their letters to you seem like they're from an attorney, court, or government agency.

Debt collectors cannot call you at unusual or inconvenient times or places. Generally, they may call between 8 a. Debt collectors may send you notices or letters, but the envelopes cannot contain information about your debt or any information that is intended to embarrass you. You may ask a debt collector to contact you only by mail, or through your attorney, or set other limitations.

Make sure you send your request in writing, send it by certified mail with a return receipt, and keep a copy of the letter and receipt. You also have the right to ask a debt collector to stop contacting you entirely. If you do so, the debt collector can only contact you to confirm that it will stop contacting you and to notify you that it may file a lawsuit or take other action against you. Remember that if you ask a debt collector to stop contacting you entirely, it may still sue you and may still report your debt to credit reporting companies, which will likely hurt your credit.

For information about when a debt collector can contact your employer or other people, see Debt Collector Contacting Your Employer or Other People. A debt collector may call your employer once to verify your employment. Healthcare providers and their agents may also call your employer to find out if you have medical insurance. Otherwise, the debt collector must contact your employer in writing.

If the collector receives no response to its written contact within 15 days, it may then call or otherwise contact your employer. Generally, a debt collector cannot contact your family, neighbors, or other people about your debt unless:.

A debt collector can contact your spouse.