We study the limitations for entanglement due to collisionaldecoherence in a Bose-Einstein condensate. Specifically weconsider relative number squeezing between photons and atomscoupled out from a homogeneous condensate. We study the decayof excited quasiparticle modes due to collisions in condensatesof atoms with one or two internal degrees of freedom. The timeevolution of these modes is determined in the linear responseapproximation to the deviation from equilibrium. We useHeisenberg-Langevin equations to derive equations of motion forthe densities and higher correlation functions which determinethe squeezing. In this way we can show that decoherence due toquasiparticle interactions imposes an important limit on thedegree of number squeezing which may be achieved. Our resultsare also relevant for the determination of decoherence times inother experiments based on entanglement, e.g. the slowing andstopping of light in condensed atomic gases using dark states.