Statute of limitations
The statute of limitations is the period set by law during which a creditor can enforce a claim through the courts.
General principle
The law does not allow a claim to hang over a person forever. For debts there is a period during which the creditor can go to court. Once it has passed, the debtor can usually raise the expired limitation period, and the court will refuse to enforce the debt.
The length of the period, when it starts and the events that interrupt or suspend it vary by country and type of contract. Often the date of the last payment or a written acknowledgment of the debt matters. Rules depend on the country, so check exact periods and procedures with a lawyer.
Why it matters
For a collections manager, the limitation period is a deadline for the whole portfolio. Miss it, and the court may be out of reach even with complete paperwork. The debt still exists, but there are far fewer tools to collect it.
The limitation period also affects the price of a debt when it is sold. A portfolio with expiring periods is worth noticeably less.
What to do about it
For every debt, store the dates that matter for the calculation: the date of default, the last payment and any written acknowledgment. Regularly check which debts are approaching the end of the period, and decide in advance: court, sale or write-off.
Do not mislead debtors. In many countries it is prohibited to demand payment of a time-barred debt while presenting it as enforceable in court.
The typical mistake is remembering the limitation period after it has already expired. This check should be a regular part of portfolio management.
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