Statute of Limitations (SOL) is a time period allowed by the state for a creditor to assert their claim on a debt. The time period varies greatly depending on the type of contract (oral, written, promissory note or open-ended) and the state where the debtor resides. For example, the SOL can range from two years for an oral contract in California to 15 years for a written contract in Kentucky or West Virginia. If the debt is not paid within the time frame allowed, suit must be initiated.
Let’s take a deeper look into the types of debt and what can be done to protect the creditor’s interest.
Oral – A debtor has agreed to pay you for a loan, goods or services, but the repayment is only verbally agreed to with nothing in writing.
Written – The customer agrees in writing to pay an obligation that is signed by at least the debtor but typically both parties. Example: “I agree to pay ABC Company $12,000 for product supplied. Signed Joe Jones, President, Jones Distributing”. Note: Invoices in and of themselves are not contracts as there must be an offer, acceptance and consideration. Sending the goods is consideration and signing the invoice is considered acceptance.
Promissory Note – Also in writing, promissory notes differ from written contracts in that the details of the repayment are spelled out (i.e., payment amount, date, principal and interest if any). Examples include car loans and mortgages.
Open-ended – The balance and repayment terms can vary and therefore are “open-ended”. Lines of credit and credit cards are open-ended, for instance.
Any of the above could apply to a commercial situation. Most likely, though, the transaction would be considered written. In some states the SOL can start over with a partial payment while others would require a new contract. Therefore, it is important to begin the collection process as soon as possible to afford you the opportunity to make the best decision at the least cost to you within the allotted time.
For the time frame that would apply to your debt, please contact your Transworld System Commercial Collection consultant or post your questions in the comments field below!