Written by attorney Sean Sullivan Hanley

Statute of Limitations on Debt Collection

Recent case law has held that aside from the debtor's right to file for Bankruptcy and the protections afforded to debtors under FDCPA, the reach of creditors seeking to recover a debt extends for a limited prescribed time frame. This time frame is set by a state's statute of limitations (SOL). The SOL time period varies widely between states, with most states having a three to ten year SOL period. Debts that go beyond the SOL period are often referred to as "time-barred debts". In California, the following SOL applies: (a) 4 years for "written contracts"; (b) 2 years for "oral contracts"; (c) 4 years for "promissory notes"; and (d) 4 years for "open accounts" (including credit cards).

Many state laws and codes do not refer specifically to "credit cards" or "credit card agreements". Instead, the statues typically use the general terms "written contracts" or "open accounts", which credit card agreements fall under. While some statues have prescribed SOL periods regarding "written contracts", state court rulings may take precedence and make the effective statute of limitations for consumer contracts or debts earlier or later than state law. For example, a recent Georgia Court of Appeals decision held the SOL period on an unpaid credit card debt was six years even though the Georgia statutory code sets the limit on open-ended accounts at four years. Hill vs American Express (2008). Thus, while statutory law provides guidance on the SOL for credit card debts and the like, case law may trump statutory law in certain situations.

Although time-barred debts are debts that by definition cannot be pursued by a collector after the SOL period has run, many debt collectors still attempt to collect time-barred debts (they simply cannot use the courts to collect them). The problem for debtors is that debt collectors again employ "strong-arm tactics" to recover time barred debts and scare the debtor, who is unaware of his/her legal rights, into paying, or sometimes reaffirming the debt, which, unbeknownst to debtor, creates a new start date for the SOL. Debtors can protect themselves from lawsuits by making a motion to dismiss the case based on the fact that the debt is "time-barred". Many debtors fail to protect themselves from a time-barred lawsuit by making the motion to dismiss the case due to the SOL, however, which allows the debt collector to successfully continue to pursue and ultimately collect a money judgment against the debtor as the SOL defense is the duty of the debtor to affirmatively raise.

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