Debt Collection in the USA: A Comprehensive Guide for Businesses

The debt collection industry in the United States is a significant economic sector. According to IBISWorld industry data (2025/2026), there are approximately 5,467 collection agencies generating approximately $13.57 billion in revenue annually - down from earlier estimates of over $15 billion, reflecting a decade of industry consolidation and workforce reduction. The primary federal law governing this industry is the Fair Debt Collection Practices Act (FDCPA), which is enforced by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). It is crucial to understand that the FDCPA applies specifically to the collection of consumer debts—those incurred for personal, family, or household purposes.

​ It does not cover commercial debts at the federal level, which are debts owed by one business to another (B2B). The collection of B2B debt is generally governed by contract law and state-specific regulations. However, this general rule now carries a critical exception: effective July 1, 2025, California Senate Bill 1286 extended consumer-style debt collection protections to covered commercial debts under $500,000 through an amendment to the California Rosenthal Fair Debt Collection Practices Act (RFDCPA). See the dedicated section below for full details.

A frequent misconception is that B2B debt collection operates in a deregulated environment. In reality, states aggressively license commercial collection agencies. Under California’s Debt Collection Licensing Act, entities collecting commercial debt must obtain licensure and bonding from the Department of Financial Protection and Innovation (DFPI). Similarly, Florida requires commercial debt collectors to register with the Office of Financial Regulation and maintain active surety bonds under Fla. Stat. § 559.545. Engaging an unlicensed agency can expose the original creditor to regulatory penalties, invalidate collection efforts, and render the underlying debt unenforceable in court. Always verify the state licensure of any commercial collection partner before engaging their services. 

When collecting a debt, it’s important to know the debtor’s business structure, as it impacts liability.

● Sole Proprietorship: There is no legal distinction between the owner and the company. The owner is personally liable for all business debts. Note: Under California SB 1286, sole proprietors are explicitly covered by the Rosenthal Act for commercial debts under $500,000.

● Limited Liability Company (LLC): This structure provides limited liability to its owners (members), protecting their personal assets from business debts, depending on state laws.

● Corporation: A separate legal entity from its owners (shareholders). Shareholders have limited liability for the corporation’s debts. Note: Corporate debts that are personally guaranteed by an individual fall within the scope of California SB 1286.

Effective July 1, 2025, California Senate Bill 1286 (Chapter 522, Statutes of 2024) fundamentally altered the B2B debt collection landscape in the United States’ largest state economy. The amendment to the California Rosenthal Fair Debt Collection Practices Act (Cal. Civil Code § 1788.1 et seq.) extended stringent consumer-style protections to “covered commercial debts.” A covered commercial credit transaction is defined as one involving property, services, or money totaling $500,000 or less, acquired on credit primarily for commercial purposes, owed by a natural person—meaning sole proprietorships, partnerships, and corporate debts personally guaranteed by an individual.

The $500,000 threshold aggregates all transactions between the same parties. Creditors and collection agencies operating in or collecting from businesses within California must now comply with requirements, including:

● Debt validation notices in 12-point font in initial written communications

● Prohibition on threatening or profane language

● Strict limits on telephone contact frequency to prevent harassment

● Prohibition on communications that simulate judicial processes or governmental authority

Violations expose creditors to private lawsuits for actual damages, statutory penalties up to $1,000 per willful violation, and reasonable attorney’s fees. Any article or guide presenting B2B debt collection as uniformly exempt from consumer-style regulation is now legally hazardous for commercial operations in California.

Communication and Best Practices

The amicable process in the U.S. is characterized by direct, persistent, yet professional communication. Standard methods include sending a formal letter or email that clearly states the amount owed, the original creditor, and the payment instructions. This is often followed by phone calls to discuss the debt and negotiate a payment plan, as well as a series of written reminders at regular intervals.

Interest and Collection Costs

Can you add interest or the cost of collection to the debt? This is a critical point governed by your initial agreement.

● Interest: Interest can be pursued only if a signed contractual agreement explicitly allows it. If the contract validates it, the agreed-upon interest rate can be charged

● Collection Costs: Similarly, collection costs cannot be added unless a signed contract between you and your debtor permits it. Even then, these costs are often used as a negotiation tool during the collection process.

Required Documents for Legal Action

To proceed with a lawsuit, you must provide comprehensive documentation, including a clear statement of account, all contracts, orders, invoices, and delivery notes. Every part of the trading relationship must be documented.

Filing a Lawsuit and Service of Process Timelines

If a formal demand letter is ignored, a creditor can file a lawsuit. For consumer debts, the FDCPA requires the lawsuit to be filed in the consumer's jurisdiction of residence or the jurisdiction where the contract was signed. Service of process timelines vary critically by court system and must not be conflated:

• Federal Courts (FRCP Rule 4(m)): Exactly 90 days from filing to serve the summons and complaint. This has been the strict federal standard since December 1, 2015. There is no 120-day or 180-day window in federal court. Failure results in mandatory dismissal without prejudice, absent a showing of good cause.
• State Courts: Timelines vary widely and cannot be summarized as a single standard. North Carolina requires service within 60 days of summons issuance (or it becomes “dormant”). California (Rule 3.740 for collection cases) allows 180 days. Oklahoma allows 180 days. Nevada allows 120 days. Always verify the specific rule in the jurisdiction where the lawsuit is filed.

Critical warning: Relying on the 180-day limit in a federal action, or in a state with a shorter deadline, such as North Carolina, can result in an irreversible dismissal and potential statute-of-limitations expiration.

Obtaining and Enforcing a Judgment

If the court rules in the creditor’s favor, it will issue a judgment. This judgment can be recorded in the public record, creating a lien against the debtor’s property. Lien validity varies significantly by state and by asset type (real vs. personal property):

• Pennsylvania: Civil judgment valid 5 years; lien on real estate lasts 5 years and must be revived before expiration; can be maintained for 20+ years through continuous revival.
• Florida: Money judgment enforceable for up to 20 years. Lien on real property valid 10 years (renewable once); lien on personal property 5 years (renewable once). The 2023 Florida Judgment Lien Improvement Act expanded attachment to intangible assets such as accounts receivable.
• California: Judgment and execution lien expires 10 years after entry; must file for renewal before the expiration date.
• Arkansas: Both judgment and lien are capped at 10 years.
• Oregon: Certain judgment liens (e.g., unpaid spousal support) may last up to 25 years—the absolute upper limit.
• Federal Judgments: Under 28 U.S.C. § 3201, lien on real property effective for 20 years, renewable once for 20 additional years.

Note: The enforceability period of the money judgment and the duration of the judgment lien on property are governed by separate statutes and frequently differ. Creditors must track both independently.

With a judgment, a creditor can pursue enforcement actions like wage garnishment, bank levies, or seizing and selling the debtor’s property.

The Fair Debt Collection Practices Act (FDCPA)

The FDCPA is the cornerstone of consumer protection in debt collection. Its key provisions include the right to debt validation and prohibitions on harassment and false statements. It applies only to consumer debts collected by third-party debt collectors; first-party creditors collecting their own debts in their own name are generally exempt at the federal level.

State-Level Regulations and Statutes of Limitations

A critical component of state law is the statute of limitations, which sets a time limit for filing a lawsuit to collect a debt. The ranges below represent the outer boundaries of American law; most actionable debts concentrate in the 3–6 year range:

• Open accounts (e.g., credit cards): generally 2–10 years
• Written contracts: generally 3–10 years (note: the 15-year upper limit previously cited for states like Kentucky and Ohio is no longer accurate—Kentucky reduced its limit to 10 years in 2014; Ohio to 8 years)
• Sale of goods (UCC § 2-725): standardized 4-year statute in 41 states

The limitation period can be suspended (tolled) or restarted in most states if the debtor makes a partial payment or provides a written acknowledgment. However, New York’s Consumer Credit Fairness Act prohibits reviving the limitations period by payment or acknowledgment for consumer credit transactions—a protection against “zombie debt” tactics.

Medical Debt: A 2025 Regulatory Reversal

The medical debt credit reporting landscape underwent extreme regulatory upheaval in 2025. The following chronology reflects the current legal status as of 2026:

• 2022–2023: The three major credit reporting agencies (Equifax, Experian, TransUnion) voluntarily removed paid medical debts, debts under $500, and debts less than one year old from consumer credit reports.
• January 7, 2025: The CFPB issued a final rule under Regulation V prohibiting creditors from using medical debt information in credit eligibility decisions and banning CRAs from including any medical debt on credit reports sent to lenders.
• July 11, 2025: The U.S. District Court for the Eastern District of Texas vacated the CFPB’s medical debt reporting rule in its entirety. The court ruled that the federal Fair Credit Reporting Act (FCRA) expressly preempts state laws attempting to impose similar restrictions, including statutes in California (SB 1061), Colorado (HB 23-1126), Oregon (SB 605), and Washington (SB 5480).
• October 2025: The CFPB issued formal guidance confirming that federal law preempts state-level medical debt reporting bans.

Current compliance status (2026): Medical debt remains legally reportable on credit reports under the FCRA. State-level statutory bans have been preempted. The only remaining suppression is the CRAs’ voluntary $500 threshold. Entities advising that regulations currently prohibit medical debt reporting are providing incorrect guidance.

International Debt Collection

International debt collection in the USA has its own unique rules and requires specific expertise. For more, see our Internal Link: International Debt Collection Services.

Insolvency and Bankruptcy Proceedings

When a debtor files for bankruptcy, an automatic stay immediately halts all collection efforts. Bankruptcy is controlled by federal law.

• Chapter 7 (Liquidation): The most common form, where a trustee sells the debtor’s non-exempt assets to pay creditors. Most are "no-asset cases."
• Chapters 11, 12, & 13 (Reorganization): More complex proceedings where the debtor keeps their property and uses future earnings to pay off debts over time.

Critical: Proof of Claim Deadlines Have Changed. The 90-day proof-of-claim deadline is obsolete. Under the Federal Rules of Bankruptcy Procedure Rule 3002(c), as amended effective December 1, 2017, the current deadlines are:

• Non-governmental creditors (Chapters 7, 12, 13): Must file a proof of claim within 70 days of the order for relief (effectively the petition date). Missing this bar date results in the disallowance of the claim and forfeiture of any distribution from the estate.
• Governmental units (IRS, state tax authorities): 180 days after the order for relief (11 U.S.C. § 502(b)(9)).
• Creditors with residential mortgage claims: Primary proof of claim within 70 days; up to 120 days to file supporting attachments (promissory note, mortgage deed) per FRBP 3002(c)(7).
• Secured creditors under Chapter 13: Must now file a proof of claim to participate in plan distributions (2017 amendment to FRBP 3002(a)), though failure to file does not void the underlying lien.
• Subchapter V (commercial reorganization): Local rules frequently impose a 70-day deadline for non-governmental proofs of claim.

It can take 12 to 24 months to learn if any funds will be distributed from the estate.

Arbitration and Mediation

Unless specified in a contract, arbitration or mediation is rare before a lawsuit. However, due to backlogs, many U.S. courts now require parties to submit to non-binding mediation before a case can proceed to trial.

Correction of a common misconception: It is false that rejecting a mediator’s recommendation generally exposes a party to paying the opposing counsel’s attorney’s fees. The United States follows the “American Rule”: each party pays its own attorney’s fees regardless of outcome, unless a specific statute or contractual clause explicitly mandates fee-shifting.

If a defending party makes a formal written Offer of Judgment under Federal Rule of Civil Procedure 68 (at least 14 days before trial) and the opposing party rejects it and then fails to obtain a more favorable judgment, only post-offer administrative court costs (filing fees, transcripts, witness fees) shift—not attorney’s fees. The Supreme Court confirmed in Marek v. Chesny (1985) that FRCP 68 costs do not include attorney’s fees unless the underlying statute explicitly defines them as costs.

The prior practice of penalizing parties with attorney’s fees for rejecting a case evaluator’s recommendation existed under Michigan Court Rule 2.403 but was eliminated by the Michigan Supreme Court effective January 1, 2022. No comparable federal rule exists. Mediation communications are protected by privilege and confidentiality statutes in most jurisdictions (e.g., Fla. Stat. § 44.405) and cannot be used as a basis for fee awards.