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California Statute of Limitations for Contracts

What is California's statute of limitations for collecting a debt?

I live in California and have recently received a summons from an attorney on behalf of a collection agency. The status of the account is "Collection Account" and the status details says, "this account is scheduled to continue on record until Jun 2010." I got a copy of my TransUnion and Experian credit reports today. Though there is nothing indicating the date of my last payment, I am almost positive the last payment was made in October of 2003. Does the statute of limitation apply to this scenario?

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Updated: Oct 23, 2014

California
Highlights

  • Understand that the passing of the SOL does not mean that a creditor cannot sue you.
  • Seek legal counsel, to verify that the SOL applies to your debt.
  • Request that a debt be validated.

Statutes of limitations for debt are often misunderstood. It is common for people to mix together the timelines for charging off a debt, the credit report reporting period for delinquent debt, and a state’s statute of limitations into one concept. My answer here will describe each of these, with a focus on California’s statute of limitations rules. Let us start with the statute of limitations.

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Statute of Limitations For Debt in General

When a borrower fails to repay a debt, this is considered a breach of contract. A contract can be written or spoken. A breach of contract may give the harmed party a cause of action, which is a legal reason to file a lawsuit against the other party.

A statute of limitations for contract breach is, at its heart, a state's policy decision. It is an attempt by the state legislature to set the amount of time people and organizations in that state have to use the courts to resolve contract breaches. Some legislatures like Ohio set long statutes of limitations, and others like California, set short limits.

A statute of limitations for debt is an affirmative defense a defendant can use if the time for filing an action (a lawsuit) has exceeded what the state allows. In all but a few states, the passing of a statute of limitations does not prevent a plaintiff (a collection agent or original creditor) from filing an action. If the statute of limitations has passed, the defendant (the debtor or consumer) must raise this defense before the conclusion of the trial. The court will dismiss the case if it accepts the statute of limitations defense.

A statute of limitations for debt does not:

  • Prevent the filing of a lawsuit (in most states)
  • Set how long a debt can appear on a credit report
  • Allow you to ignore a court’s summons
  • Bar collection agents from attempting to collect the debt (except in Wisconsin and Mississippi)

If you determine your state’s statute of limitations for breach of contract has passed, the likelihood of the creditor attempting to file an action to enforce the debt is low. A creditor filing an action indicates either he or she believes the statute of limitations has not expired, or he or she believes the defendant will not raise this defense.

Wisconsin and Mississippi outlaw lawsuits against consumers in cases where those state statutes of limitation have passed. Wisconsin and Mississippi are the only exceptions to the “lawsuits are allowed for original creditors even if the statute of limitations expired” rule.

California Statute of Limitation for a Contract

According to California Code of Civil Procedure § 337(1), the statute of limitations for a written contract is four years. Under § 339(1), the limit for an oral contract is two years. See the Bills.com resource Collection Laws and the Statute of Limitations for the rules in other states. See also How to Tell Which Statute of Limitations Applies to Your Situation.

The California statute of limitations does not apply to an original creditor or collection agent telephoning or sending letters in an attempt to collect a debt. Under California law, the expiration the statute of limitations clock does not mean an original creditor cannot file an action. (The opposite is true for collection agents.) The statute of limitations clock running out does not prevent original creditors or collection agents from calling or sending you letters to try to collect the debt. In California, the statute of limitations is a defense used in a trial only.

Collection agents violate the FDCPA if they file a debt collection lawsuit against a consumer after the statute of limitation expired (Kimber v. Federal Financial Corp. 668 F.Supp. 1480 (1987) and Basile v. Blatt, Hasenmiller, Liebsker & Moore LLC, 632 F. Supp. 2d 842, 845 (2009)). Unscrupulous collection agents sue in hopes the consumer will not know this rule.

California courts allow contracting parties to modify the length of the otherwise applicable California statute of limitations, whether the contract has extended or shortened the limitations period. Extending the length must take place at the time of contract, and cannot be done retroactively.

Clock Starting & Stopping

When does the clock on a statute of limitations for a contract begin to run? In earlier versions of this answer, my writing was unclear on this subject. Under California CCP § 312, “Civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, unless where, in special cases, a different limitation is prescribed by statute.” What does this mean?

Courts interpret and refine vague statutes. A 1992 case, Spear v. Cal. State Automobile Ass’n, is a recent decision on this matter. The California Supreme Court decided, “A contract cause of action does not accrue until the contract has been breached.” In the 1996 case Angeles Chem. Co. v. Spencer & Jones, the same court decided, “The claim accrues when the plaintiff discovers, or could have discovered through reasonable diligence, the injury and its cause.”

These cases mean that in California, the clock starts when the moment the borrower defaults on their payments. If, for example, a payment is due on June 1 and it does not arrive by that date, the statute of limitations clock starts running on June 2. Similarly, if a payment of — for the sake of argument — $100 is due on July 1 and the borrower pays less than $100, the borrower is in breach of contract at that point.

Tolling & Statutes of Limitations

Tolling stops the statute of limitations clock. These events can toll a statute of limitations in California:

  • Defendant absent from the state (CCP § 351)
  • The plaintiff was a minor (CCP § 352(a); Family Code § 6500 and 7050(e)(4))
  • Plaintiff was mentally disabled or incompetent (CCP § 352(a))
  • Plaintiff was incarcerated in prison (CCP § 352.1(a))
  • The defendant has a restitution order in place (CCP § 352.5)
  • The plaintiff or defendant die (CCP § 366.1 and 366.2)
  • State Bar takes over the attorney’s law practice (CCP § 353.1 )
  • War prevents access to the court (CCP § 354)
  • Bankruptcy, injunction or statutory prohibition (CCP § 356)
  • Voluntary agreement between the parties (CCP § 360.5)
  • Defendant’s felony conviction (CCP § 340.3(a))
  • Military service (50 U.S.C. App. § 526)
  • Delayed discovery, when plaintiff suspects or should have suspected injury
  • Various equitable tolling circumstances, including impossibility due to circumstances, interference, fraud and so on

Consult with an attorney licensed to practice in California to discuss the specifics of your situation and to help you determine if tolling applies.

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Credit Report, Charge-Off & Statute of Limitations

The amount of time that derogatory comment on an account in a credit report is set by federal law called the Fair Credit Reporting Act. The federal credit report rules and the California civil procedure rules regarding the statutes of limitations have only one tiny connection: The length of time a judgment may appear on a credit credit report is either 7 years or the life of the judgment, whichever is longer. A California judgment is valid for 10 years, and can be renewed. Therefore, a California judgment will appear on a person's credit report for 10 years.

See the Bills.com resource Charge-Off & Credit Report to learn more about the relationship between statutes of limitations and credit reports.

Your Question

You mentioned you reside in California, your last payment was due in 2003, and you received a summons from a lawyer. You also mentioned copies of your credit reports. Be sure to check in with providers of debt consolidation in California such as this linked provider to get an evaluation.

Review your credit reports to see if the date of first delinquency is mentioned. If you stopped making payments and never restarted, this date of first delinquency is clue to the date of contract breach. Ignore the charge-off and first reported dates, as those are not significant for learning your date of breach. It is likely the statute of limitations has run its course, unless you fit into one of the tolling exceptions listed above. However, as we discuss above, a California plaintiff is not barred from filing an action if the statute of limitations has expired. Consult with a California lawyer who has civil litigation or consumer law experience to discuss how to file an answer that includes a motion for dismissal based on a statute of limitations defense.

For more information about negotiating with your creditors, visit our debt settlement information page.

For further information regarding options available to consumers struggling with debt, I invite you to visit the Bills.com debt help resources page. I hope the information I have provided will help you Find. Learn. Save.

Best,

Bill

Bills.com

358 Comments

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  • JS
    Jul, 2014
    Julie
    I had a checking account that went overdrawn and the bank closed the account. This was in October of 2011. I moved out of California in June of 2013. Is a checking account considered a written contract? What would the statute of limitations be for this? Have I tolled the statute of limitations by moving out of state? I just started to receive calls from a debt collector regarding this account. Thank you.
    0 Votes

    • BA
      Jul, 2014
      Bill
      It is almost a certainty a court would find the statute of limitations for written contracts applies to a checking account agreement.

      Which state's statute of limitations applies here is the tricky part. If the original creditor — your California bank — was pondering a lawsuit against you, it would look to the contract you two signed when you opened the account to see if the contract contained a choice of laws clause. A choice of laws clause says in effect, "You may be a California resident, and we may be incorporated in Delaware, but if there's ever a lawsuit between us we agree to use South Dakota's state laws, including its statute of limitations rules." If your bank was suing you, you would need to read the contract you signed when you opened the account to learn which state laws apply.

      You mentioned a collection agent is trying to collect the debt. Different rules apply to collection agents. Collectors must follow the Fair Debt Collection Practices Act. The FDCPA requires collection agents to file a lawsuit in either the state the consumer resides in now, or the state where the contract was signed.

      If the collection agent sues you, it must do so either in California or your state of residence. It is likely but not certain, a California court would use its own statute of limitations rules. If you're sued in your state, it is likely but not certain your state court would bend over backwards to apply its statute of limitations rules.

      You asked about tolling. In this case, if the original creditor or a collection agent argues the statute of limitations clock was tolled when you became a resident in another state, you would argue the tolling rules do not apply because you were available for service of process at your new residence. It is likely a California court would agree with your interpretation of the tolling statute.
      0 Votes

  • ED
    Jun, 2014
    Edgar
    Bill, thank you for your fantastic website and expertise on SOL. The situation I find myself in is rather interesting, if you want to call it that. Back when I was in high school I received a loan to attend college from my municipality which I promised to pay after 10 years of interest free. That was back in August/September 1994. Soon after college (1999) I contacted the municipality to begin paying off my debt ($21K in total) but was advised by the own municipality personnel to not make payments until after the 10 years of free interest was up. I had forgotten all about this debt until last week when I got a call from a collection agency attempting to collect $56K+ for this loan (35K+ in interest). I just about hit the floor when he told me the amount. I have never made a payment on this loan and the 10 years free interest ended in 2008. We are now in June 2014 (nearly 20 years after I initially got the loan to attend college), is it safe to assume that the SOL has expired and I can send the collection agency a Expired Statute of Limitations letter? I was planning on buying my first home in the next year and now I am afraid what this debt will do to my credit score. Any advise would be greatly appreciated.
    0 Votes

    • BA
      Jul, 2014
      Bill
      There's no short answer to your question. Two tricky issues here:
      • When did the statute of limitations clock start? Look at your loan contract to learn when your first payment was due. My guess, note that word choice, is your first payment was due when you completed your studies in 1999. If so, then the statute of limitations clock started in 1999. However, if your contract states your first payment is due 10 years after you complete your studies, then the clock started in 2009. Don't guess on this issue — review your contract.
      • Which statute of limitations applies, if any? Check the Dept. of Education’s National Student Loan Data System (NSLDS) to see if the loan is federal. State statutes of limitations do not apply to federal loans, and are subject to collection indefinitely. Student loans not backed by federal grants or guarantees do not appear in the NSLDS, and are probably subject to state statutes of limitations for written contracts.

        If the loan is not federal, and the municipality that lent you the money is in California, then California's statute of limitations for written contracts probably applies.

      If the loan is not federal, and you borrowed the money from a municipality in another state, then it is likely that state’s statute of limitations applies.

      Consult with a California lawyer who has consumer law experience if you receive notice of a lawsuit.

      0 Votes

  • AD
    Jun, 2014
    angie
    I had a car loan in 2009 that I could no longer make payment on. I am getting a 3rd party mail service person call stating that I must receive this letter and show ID. Should I receive this letter? Will accepting this letter restart the clock of the SOL?
    0 Votes

    • BA
      Jun, 2014
      Bill
      Accepting a letter's delivery does not restart a statute of limitations. You risk nothing by accepting delivery of the letter. Perhaps you are being sued. In some states, you could receive a summons via mail. Verify the information you receive is accurate, before you take any action. A scammer could send you something that looks like a court document to pressure you into paying.

      The California statute of limitations for a written contract is 4 years. Take action if you receive a summons. Include a statute of limitations defense in your written answer to a summons and complaint if:
      • More than 4 years have passed since you defaulted on the loan, and
      • You made no payments since your default more than 4 years ago, and
      • You made no written promise to make a payment on the loan, and
      • You took no action to toll the statute, and
      • California law applies to the contract.

      Tolling can extend a statute of limitations clock. Review the section above about tolling.

      0 Votes

  • CS
    Jun, 2014
    Cynthia
    I had a school loan around 24 years ago and could not pay. I got a letter saying they are going to garnish my checks. Can they do that?
    0 Votes

  • MK
    May, 2014
    Mike
    If a collection company can not properly verify a debt can they still sell it to another collection company?
    0 Votes

    • BA
      May, 2014
      Bill
      Collection agents are not prohibited from selling collection accounts they cannot verify.
      0 Votes