United States: Collecting Charge-Offs: A Valuable Source Of Revenue (Part Three Of Three-Part Series)

Last Updated: July 29 2014
Article by Elizabeth Lee Thompson

Co-authored by: Robin Frazer, Summer Associate

In this three-part series, Stites & Harbison ("S&H") is examining how banks can take advantage of the opportunities to recover loans that were charged off in the Great Recession.  As the economy recovers, borrowers are now more likely to have sufficient assets to pay back the charged-off loans and the time is ripe for banks to collect this valuable source of income.  The first part of the series described the approximately $294.8 billion that has not yet been collected from the post-2008 charge-offs and the success S&H has had in assisting its clients to recover these.  The second part of the series discussed how S&H makes the recovery process economical for banks by using its resources to ascertain the borrower's location, the value of the borrower's assets, and to determine if recovery efforts would be worthwhile.  Now, the third and final part of the series will discuss why statutes of limitation concerns should prod banks to seek recovery now; and collecting charge-offs in foreign countries.

A. Statutes of Limitations

Banks must act promptly to recover Recession era charge-offs. Recovery efforts will be barred if not brought within the time allowed by the applicable statutes of limitations.  Furthermore, statutes of limitations vary dramatically among different jurisdictions; in the U.S., statutes of limitations for written contracts (which apply to contracts for loans) can range from three to fifteen years.  Additionally, statutes of limitations often change—for example, the Kentucky legislature recently reduced the statutes of limitations for written contracts from fifteen years to ten, and the change will apply to contracts written after the enforcement date of July 15, 2014.  Accordingly, in advising its clients, S&H takes into account variations among states and stays aware of changes in the law that may prevent a client from bringing suit. 

The following is a chart of the statutes of limitations for written contracts among the fifty states and the District of Columbia, and it illustrates the variation that exists between the statutes:

AL 10 ALA. CODE § 6-2-33
AK 3 ALASKA STAT. § 09.10.053
AZ 6 ARIZ. REV. STAT. ANN. § 12-548
AR 5 ARK. CODE ANN. 16-56-111
CO 6
(for contracts
relating to
COLO. REV. STAT. § 13-80-103.5
CT 6 CONN. GEN. STAT. § 52-576
DE 3 DEL. CODE ANN. tit. 10, § 8106
DC 3 D.C. CODE § 12-301
FL 5 FLA. STAT. § 95.11
GA 6 FLA. STAT. § 95.11
HI 6 Haw. Rev. Stat. § 657-1
ID 5 IDAHO CODE ANN. § 5-216
IL 10 735  ILL. COMP. STAT. 5/13-206
IN 6
(for contracts
for payment
of money)
IND. CODE § 34-11-2-9
IA 10 IOWA CODE § 614.1
KS 5 KAN. STAT. ANN. § 60-511

(for contracts
entered into
after July 15,
(for contracts
entered into
July 15, 2014)

HB 369; KRS 413.160
LA 10 LA. REV. STAT. ANN. § 3499
ME 6 ME. REV. STAT. tit. 14, § 752
MD 3 MD. CODE ANN., CTS. & JUD. PROC. § § 5-101
MA 6 MASS. GEN. LAWS ch. 260, § 2
MI 6 MICH. COMP. LAWS § 600.5807
MN 6 MINN. STAT. § 541.05
MS 3 MISS. CODE ANN. § 15-1-49
MO 5 MO. REV. STAT. § 516.120
MT 8 MONT. CODE ANN § 27-2-202
NE 5 NEB. REV. STAT. § 25-205
NV 6 NEV. REV. STAT. § 11.190
NH 3 N.H. REV. STAT. ANN. § 508:4
NJ 6 N.J. STAT. ANN. § 2A:14-1
NM 6 N.M. STAT. ANN. § 37-1-3
NY 6 N.Y. C.P.L.R. § 213
NC 3 N.C. GEN. STAT. § 1-52
ND 6 N.D. CENT. CODE § 28-01-16
OH 8 OHIO REV. CODE ANN. § 2305.06
OK 5 OKLA. STAT. tit. 12, § 95
OR 6 OR. REV. STAT. § 12.080
PA 4 42 PA. CONS. STAT. § 5525
RI 10 R.I. GEN. LAWS § 9-1-13
SC 3 S.C. CODE ANN. § 15-3-530
SD 6 S.D. CODIFIED LAWS § 15-2-13
TN 6 TENN. CODE ANN. § 28-3-109
TX 4 (for 
relating to debt)
TEX.  CIV. PRAC. & REM. CODE ANN. § 16.004
UT 6 UTAH CODE ANN. § 78B-2-309
VT 6 VT. STAT. ANN. tit. 12, § 511
VA 5 VA. CODE ANN. § 8.01-246
WA 6 WASH. REV. CODE § 4.16.040
WV 10 W. VA. CODE § 55-2-6
WI 6 WIS. STAT. § 893.43
WY 10 WYO. STAT. ANN. § 1-3-105

Similarly, S&H is aware that statutes of limitations in foreign countries vary as well.  For example, Canada has a similar system to the U.S. and each of its provinces has statutes of limitations for collecting debts ranging from two to six years.1 Furthermore, acknowledgement of the debt in several Canadian provinces can extend or restart the statutes of limitations.2 In sum, S&H is cognizant of the different statutes of limitations that apply both domestically and abroad, and can help banks plan their recovery efforts to comply with the relevant time bars.

B. Enforcing U.S. Judgments Abroad

In an increasingly global world, S&H recognizes that individuals and companies that incur debt with U.S. banks often reside outside of the country.  Accordingly, S&H is equipped to advise its clients on how to collect debts from borrowers located abroad.  Through the state's long-arm statutes, S&H can assist banks in obtaining jurisdiction over foreign individuals or businesses that entered into transactions with banks and can aid banks in securing judgments for the amount of the debt.  However, a court's entry of a judgment against a debtor does not automatically produce payment and the judgment must then be enforced against the debtor to collect the money.  While the Constitution's Full Faith and Credit Clause permits a litigant to collect a judgment rendered in another jurisdiction, its scope is limited to the U.S.'s borders and to enforcing judgments between the states.3 Instead, to enforce U.S. judgments abroad, international treaties and the individual laws of foreign countries govern.  Enforcement of U.S. judgments abroad is often confusing and varies among countries—however, S&H has the international expertise necessary to advise banks on how to collect judgments on charged-off loans by successfully navigating treaties and the laws of foreign countries.

For the collection of many charged-off loans, the Hague Convention on Choice of Court Agreements ("Hague Convention") will provide a method of enforcement.  Signed by the U.S. and the European Union and ratified by Mexico,4 the Hague Convention provides that when two commercial entities from different signatory countries enter into a contract with a "choice of forum" provision that specifies where disputes will be litigated, signatories to the treaty agree to enforce judgments entered in that forum.5  As sophisticated commercial parties, many banks include such choice-of-forum provisions in their loan contracts.  Thus, if the borrower of a charged-off loan is another commercial entity located in one of the signatory countries of the Hague Convention and it agreed to litigate disputes in the U.S., a U.S. judgment for recovery on a charged-off loan will be enforced by the foreign court.

Additionally, loan disputes that are decided in arbitration rather than by a traditional court are very likely to be enforced abroad.  Under the New York Convention, 147 countries have agreed to recognize all arbitral awards rendered pursuant to a written arbitration agreement that were entered in a country other than the enforcing country.6  As long as the award was properly entered and does not violate due process or the enforcing country's public policy, member countries must recognize the award as binding and enforce it in accordance with local procedural requirements.7  As the Wall Street Journal reported, banks have increasingly included arbitration provisions in their contracts with borrowers.8 Accordingly, S&H can help banks take advantage of the benefits of the New York Convention in enforcing arbitral awards abroad.

In cases not covered by the Hague Convention or the New York Convention—such as judgments entered pursuant to traditional lawsuits involving borrowers that are not commercial entities—enforcement of U.S. judgments abroad varies and greatly depends on the individual laws of the enforcing country.9 In these situations, S&H has the experience in legal research to ascertain and comply with the foreign country's laws for enforcement of U.S. judgments.  Common law countries such as the United Kingdom and Canada typically view U.S. judgments as an "implied contract to pay," and U.S. litigants must seek recognition and enforcement of the judgment by initiating a new proceeding in the foreign court.10 Additionally, civil law countries such as those in continental Europe will almost universally enforce a foreign judgment if the original court possessed jurisdiction and gave the defendant proper notice; however, enforcing judgments can become difficult because some foreign courts do not recognize all forms of American personal jurisdiction and notice as valid.11 For example, civil law countries are more likely to recognize U.S. judgments if notice was given in accordance with the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, which codifies accepted procedures for service of process among signatory parties.12 Therefore, by conducting careful research of the laws of the foreign country where enforcement will be sought, S&H can advise its clients on how to secure a U.S. judgment in the manner most likely to be enforced by the foreign country's courts.


Over the past three weeks, S&H has discussed the opportunities banks have to take advantage of valuable sources of income by collecting on loans that were charged off in the Great Recession.  Over $335.5 billion has been charged off since 2008; however, only $40.6 billion has been collected.  Moreover, as the economy improves and charge-off rates return to pre-Recession levels, borrowers are more likely to have sufficient resources to pay back those loans.  Additionally, S&H has the experience needed to aid banks in tapping into this valuable source of income.

Due to changes in technology and internet searches since 2008, S&H has the tools and resources necessary to ascertain both the location of the borrower and the value of the borrower's assets before recovery efforts begin.  Banks may worry that it will be difficult to identify those borrowers with sufficient assets; however, S&H can help banks avoid expending resources and attorneys' fees on unreachable or insolvent borrowers by gathering information about the borrower through S&H's access to LexisNexis Public Records, EDGAR, PACER, Dun & Bradstreet, PrivCo, social media searches, and private investigators.

Importantly, banks must act promptly so as to avoid allowing statutes of limitations to run rendering charge-offs unenforceable.  Finally, S&H is cognizant that collection efforts may take place in multiple jurisdictions with varying laws.  Accordingly, S&H utilizes the  law of relevant jurisdictions to collect U.S. judgments against debtors in foreign countries.

1 Limitation Act, BRITISH COLUMBIA (last visited June 29, 2014); Limitations Act, RSA 2000, c L-12, CANLII (last visited June 30, 2014); Civil Code of Québec, LRQ, c C-1991, CANLII (last visited June 30, 2014); Limitations Act, SNL 1995, c L-16.1, CANLII (last visited June 30, 2014); The Limitations Act, GOVERNMENT OF SASKATCHEWAN (last visited June 30, 2014); The Limitation of Actions Act, CCSM c L150, CANLII (last visited June 30, 2014); Limitations Act, 2002, SO 2002, c 24, Sch B, CANLII (last visited June 30, 2014); Limitation of Actions Act, SNB 2009, c L-8.5, CANLII (last visited June 30, 2014); Limitation of Actions Act, NOVA SCOTIA OFFICE OF LEGISLATIVE COUNSEL (last visited June 30, 2014); Limitations of Actions Act, REVISED STATUTES OF THE YUKON 2002 (last visited June 30, 2014); Limitation of Actions Act, RSNWT 1988, c L-8, CANLII (last visited June 30, 2014); Limitation of Actions Act, RSNWT (Nu) 1988, c L-8, CANLII (last visited June 30, 2014).

2 Blair Wettlaufer, How Long is a Debt Good For?, CREDIT INSTITUTE OF CANADA (Summer 2012).

3Matthew H. Adler & Michele Crimaldi Zarychta, The Hague Convention on Choice of Court Agreements: The United States Joins the Judgment Enforcement Band, 27 NW. J. INT'L L. & BUS. 1, 2-3 (2006).

4 Status Table: Convention of 30 June 2005 on Choice of Court Agreements, HAGUE CONFERENCE ON PRIVATE INTERNATIONAL LAW (last updated Nov. 19, 2010).

5 Adler & Zarychta, supra note 21, at 1.

6 Yuliya Zeynalova, The Law on Recognition and Enforcement of Foreign Judgments: Is It Broken and How Do We Fix It?, 31 Berkeley J. Int'l L. 150, 178-79 (2013).

7 Id. at 179.

8 Robin Sidel, No Day in Court for Bank Clients, THE WALL STREET JOURNAL (Aug. 2, 2011).

9 Zeynalova, supra note 24, at 163.

10 Id. at 164.

11 Id. at  165-65.

12 Id. at 166.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Elizabeth Lee Thompson
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions