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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  • 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.

isconsin 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.

ollection 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

273 Comments

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  • MM
    Feb, 2013
    Michelle
    My father is suing me in small claims court in CA. He claims that he loaned me $8K in 2006 so that I could open an IRA account. I had just received the summons of this action on Feb 28, 2013:
    1. He is making a false claim
    2. I would think that the statute of limitations has run out
    3. If he did write me a check for that amount it was only because he owed it to me
    4. There is no written/oral agreement that he lent me money
    5. I have no recollection of this.

    Please respond and I hope there is a God in heaven... Thank you MM

    0 Votes

    • BA
      Mar, 2013
      Bill
      My first and last thought here is a strong recommendation for you to consult with a lawyer who has civil litigation experience. My second thought is related to the claim amount. You mentioned the California small claims court. The statutory limit for a case in a California small claims court is $7,500. If the amount in controversy — the loan amount plus a reasonable amount for interest — is greater than $7,500, a California small claims court has no jurisdiction over the case, and should dismiss it. If it does not, you should consult with a lawyer to discuss filing a motion to dismiss. On to your questions:
      1. Consult with a lawyer to write answers to the complaint.
      2. The statute of limitations clock may have run out. It doing so does not preclude the plaintiff from filing an action. The expiration of the statute of limitations gives you, the defendant, an affirmative defense you can raise in a motion to the court. An statute of limitations affirmative defense is where you would tell the court words to the effect, "Even if everything the plaintiff states is true, based on the dates the plaintiff provides, his claim is time-barred under California Code of Civil Procedure § 337(1)." If you fail to raise a statute of limitations defense, the court will consider it waived. In other words, a court will not raise a statute of limitations defense for you and dismiss a case for this reason unless you ask it to.
      3. Again, a lawyer can help you create an answer to the plaintiff's allegations.
      4. You need to state that no contract existed between the parties in your answer to the complaint. If you do not deny an allegation in a complaint, the court will consider the statement as an accurate fact.
      5. The plaintiff must prove his or her case using relevant evidence. The defendant's job is to defend his or herself by making sure the plaintiff proves each of his or her statements of fact. Deny what is false in your answer to the complaint.

      It is distressing to learn one is the defendant in a civil lawsuit. It must be doubly so to learn the plaintiff is your father. If you cannot convince him in an out-of-court meeting to dismiss the case, then you need to defend yourself or you the court will issue a summary judgment against you. As I mentioned at the top of my reply, consult with a lawyer who can guide you though the process.

      0 Votes

  • CL
    Feb, 2013
    chris
    I received a settlement for damages and personal injury from an insurance company following a car accident in which the other driver was at fault. After the accident I saw a physical therapist for some back pain that was covered by my personal insurance. Now ACS Recovery Services is asking for some of my settlement money back on behalf of my medical provider because I was "paid twice". The accident was in March of 2007, and ACS has been wishy-washy in contacting me, always threatening to pursue further legal action, but not actually doing so. When this started, and I tried to return their calls, no one answered and it took over a month to call me back, so obviously they don't really want the money that bad. They claim they are not covered by a statute of limitations (CA). How do I get them to leave me alone?
    0 Votes

    • BA
      Feb, 2013
      Bill
      The next time the collection agent you mentioned contacts you, gather the caller's name, his or her employer's company name, street address, and general phone number. Then send the collection agent a cease communications notice. Should the collection agent file a lawsuit against you, consult with a lawyer who has consumer law experience immediately. Never ignore a summons.
      0 Votes

  • DM
    Feb, 2013
    David
    After 47 agonizing months of undergoing a loan modification on our California home, my lender finally offered us a trial loan mod. Why, all of a sudden did they offer this? The lender's letter has provided no details such as principle reduction, extended terms, tax inclusion, etc, simply instructions to make a slightly lower monthly payment commencing on 1 March. Could it be that because we are approaching month 48, which reaches the end of the 4 year California Statute of Limitations? We are very concerned about making this payment, starting the clock ticking again, and would like to know if we have a chance of having a portion of the mortgage loan forgiven, or at least forgiveness of the deficiency payments of nearly $400,000 over the past 47 months of non-payment (loan mod requirement). Your assistance is greatly appreciated.
    0 Votes

    • BA
      Feb, 2013
      Bill
      Consult with a California lawyer who has experience negotiating mortgage modifications before you send the lender a dime, or otherwise acknowledge the debt formally. Your analysis regarding the California statute of limitations motivating the lender or its mortgage servicer to send you an offer could be correct, or it could be acting because of the National Mortgage Settlement California it signed a year ago. Or, it could be simple incompetence caused the delay until now.

      Regardless of the reasons behind the servicer waking up, you now have the worst possible offer presented to you. The servicer displays an enormous amount of chutzpah to expect you accept a modification without disclosing its terms. As mentioned at the top of my answer, ask a lawyer to reply to the offer on his or her letterhead so that the servicer is put on notice it must negotiate in good faith.
      0 Votes

  • JG
    Feb, 2013
    Joshua
    In 2007 my apt went into foreclosure and was sold at a court hearing here in California. In 2008 and ever since then I've been getting phone calls from a collections agency (Vital Recovery Services) for the second mortgage on the property which is about $20K. They've tried to settle before (last year) for about $1,500 and even that was too much for me to pay and I told them but they didn't respond. So every now and then they call and leave a voice mail. It's been 6+ years since the foreclosure and I was wondering if these guys can still come after me with a judgement or not. and If they can, will they let me know before they file for a judgments or once they do is it already too late? My credit report shows a charge off for the past 6 years and I think that will fall off in another year or so. What do you think? Thank you
    0 Votes

    • BA
      Feb, 2013
      Bill
      If I read CCP Section 580a correctly, the mortgage lender or its collection agent has three months to file an action to collect a deficiency balance. In other words, the statute of limitations for a California deficiency balance is ~90 days. Let us say I misunderstand CCP Section 580a. If so, then California's 4-year statute of limitations for a breach of contract applies.

      In most states, it is never too late to file a lawsuit for a breach of contract. However, all states have a statute of limitations defense consumers can raise at the time of trial. If the court believes the facts and accepts the statute of limitations argument, it will dismiss the case.

      You mentioned the foreclosure occurred in 2007. If the creditor or its collection agent files a lawsuit against you today in 2013, consult with a lawyer who has civil litigation experience, and discuss raising a statute of limitations defense. Note that if you are sued, you must take action by raising the statute of limitations defense! The court will not do so for you. Never ignore a summons.

      The next time the collection agent contacts you, gather all of the contact information you can about the collector, including the caller's name, his or her employer's mailing address and telephone number. Then send the collection agent a cease contact notice via Certified Mail. Keep copies of all documents relating to the debt in a separate file folder in a secure place. If the collection agent keeps calling you, consult with a California lawyer who has consumer law experience to discuss filing a lawsuit against the collector for violating the Fair Debt Collection Practices Act. To learn more about your rights as a California resident, read the Bills.com article California Collection Laws.
      0 Votes

  • ST
    Jan, 2013
    Skyler
    I inadvertently created a debt with AT&T on a land phone in 2006 and was never aware of it (moved into a new residence and somehow assumed the contract from previous tenant). In May 2012, AT&T sold this $212 debt to a collection company. Neither AT&T nor the collection company ever contacted me. In January 2013, I applied for a mortgage to purchase a home. My credit report now shows that the collection company reported the debt for two months (June and July 2012) and then stopped. I just called them and they gave me details about the debt that I did not know before. QUESTIONS:
    1. With close to 6 years having elapsed from the date of this debt, am I still liable for it?
    2. Is there any way short of taking them to court that I can get the Collection Company to agree to write a letter stating that they are no longer pursuing me for this outdated debt and agreeing to delete the negative information from my credit report?
    0 Votes

    • BA
      Jan, 2013
      Bill
      1. Yes, you still have liability for the debt even though the statute of limitations has passed in all states but two. The original creditor or a collection agent that buys your account can file a lawsuit against you. If you do not mount a defense, claiming that the SOL has expired, the creditor will win a default judgment against you. I will assume for the sake of argument the debt was incurred while you were a California resident for a California landline. California's statute of limitations for a breach of contract is 4 years. In California, because the debt is older than the state's statute of limitations, you still have liability for the debt, and it can be reported on your credit reports up to 7 years after the date of first delinquency. See the original article above for a longer discussion of this issue.
      2. Call the collection agent and discuss the idea you mentioned here.
      0 Votes