Statute of Limitations on Credit Card

Thank you for your detailed question about your delinquent account that is in collections, the statute of limitations for your debt, and how long the negative information can appear on your credit report.

Statute of Limitations

The first issue you raised is about the statute of limitations (SOL). You are not sure which state’s rules govern the collection of your debt, Arizona or Colorado. The general rule is that the laws and rules of the state in which you reside govern the statue of limitations for collecting on a debt. However, this can be changed by contract. If your cardholder agreement contains a choice of laws clause, then it could be the case that the laws of the state in which the card issuer is located apply. In your case, the laws of Arizona will likely apply.

Tolling

How the statue of limitations applies to credit card debt is very cloudy. In addition to the choice of laws issue mentioned above, there is the issue of tolling. Tolling is when the running clock on the statute of limitations is stopped, giving the creditor additional time to collect on the debt because it was prevented from reasonably pursuing collections due to an action that the debtor has taken or due to some factor affecting the debtor. For example, some states allow a statute of limitations to be tolled if the debtor takes certain actions, such as:

• The debtor resides outside of the country
• The debtor resides outside of the state in which the contract's laws apply
• The debtor is committed to an insane asylum
• The debtor is a minor

Open vs. Written Account

There is a lot of confusion about whether a credit card account is an open account or a written account. This is a key issue, because in many states, the SOL for collecting on an open account is years shorter than the SOL a written contract. As your question illustrated, in Colorado, the SOL for an open account is 3 years and that for a written contract is 6 years.

Part of the confusion arises around the use of terms that sound similar, but are quite different, so let’s examine some of the terms used and their definitions.

 Open is a term that is used in different ways. An account is open when it is active. In this use of open, the account is open as opposed to being closed.

Another use of open is one that compares it to a written account. In this instance, open and written describe the type of agreement that exists between the debtor and creditor. An open account, in this use, describes the kind of credit account that a creditor offers to a borrower that has neither a note nor security. Generally, a written account is one that required a written contract. That seems to be common sense, but things are not quite so simple. In fact, in some jurisdictions, creditors have been able to successfully argue that the cardholder agreement that a person signs prior to using the credit card constitutes a written contract and is therefore subject to the SOL for written contracts.

Part of the confusion, I think, can be traced to the federal law entitled the Truth in Lending Act (TILA). There is language in TILA that refers to an open-ended account.

Federal Truth In Lending Act Title 15 § 103  

§ 103. Definitions and rules of construction
(i) The term "open end credit plan" means a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance.  

It is clear that TILA refers to credit card accounts, when speaking about open-end credit accounts. However, it is not safe to assume that TILA, which is federal law, requires states to view credit card accounts as open account, when it comes to determining the statute of limitations for the debt. It does not. In fact, court cases in some states have demonstrated this by defining credit card accounts as written accounts. For instance, a court in Georgia ruled, in American Express v. Hill, that a credit card account is a written account, not an open account.  The Georgia court ruled that the debt had not expired due to the statute of limitations after 4 years, the way it would for an open account, and would not expire until after 6 years, per the laws for written account.

Georgia is not the only jurisdiction where a claim that a credit card is a written account was argued successfully by a creditor. In a bankruptcy case that took place in Arkansas, in a Memorandum Opinion and Order issued, the court ruled that an Optima account was a written account, not an open account. The court rejected the arguments made by the debtors that the account was NOT a written account. The debtors unsuccessfully argued that the account was an open account, because:

1. the cardholder agreement was unsigned,
2. the terms of the agreement were subject to change by the issuer at any time without approval from the cardholder, and
3. either party may terminate the Agreement at any time

Judgment Appearing on your Credit Report

You asked how long a judgment will stay on your credit report. If you are unable to successfully argue that the debt should no longer be collectible, due to statute of limitations, the creditor may get a judgment against you. Once again, what state is deemed to have jurisdiction will affect how long the judgment stays in force. A judgment can stay in effect for 20 years in Colorado, but only for 5 years in Arizona! Quite the difference, indeed.  If you pay the debt, after a judgment is entered, it will be noted on your credit report that the debt is ‘paid,’ ‘satisfied,’ or some other term that indicates that you no longer owe the money.

The length of time a judgment may show on your credit report is governed by federal law, the Fair Credit Reporting Act.

FCRA 15 USC 1681c, Sec. 605, reads:

"(a) Information excluded from consumer reports...(2) civil judgments...that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period."

Be aware that in certain states a judgment can be renewed. For instance, certain states allow a judgment to be renewed, after it expires. If the judgment were renewed, it would continue to appear on your credit report.

Summary

It is not clearly defined whether a credit card account is an open account or a written account, when it comes to the statute of limitations. It is common for the state in which the debtor resides to determine what state’s statute of limitations limits apply, but creditors have been able to argue successfully that it is the state where the card issuer is located that determines the statute of limitations. It is possible for the statue of limitations to ‘toll’ (or not run), making it effectively run much longer than the number of years specified in the statute of limitations. If you are sued and a judgment is entered against you, it can stay on your credit report for at least 7 years, and will show even longer if the time allowed for a judgment to remain in force against you is longer than 7 years.

Recommendation

Due to the complexity of the issues involved in your case, I recommend that you speak with an attorney in Arizona who has experience in these matters. Start by seeking a free consultation with a bankruptcy attorney, who should be able to help you or to direct you to someone more expert who can assist you.

To learn more about your rights as a debtor, read the Bills.com resource Collections Advice.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com