- Analyzing which statute of limitations applies is more difficult than it first appears.
- Look to the contract you signed to see if it has a choice of laws clause.
How to Tell Which Statute of Limitations Applies to Your Situation
This article helps Bills.com readers analyze their statute of limitations questions. Statutes of limitations seem straight forward at first glance, but can become tricky because each state legislature created their own rules for handling time limits on actions.
What Is a Statute of Limitation?
All jurisdictions have a body of statutes in their codes of law called limitations of actions, periods of prescription, and prescriptive periods, commonly referred to as the statutes of limitations. The idea behind these laws is we as a society decided we do not want old debts hanging around forever — we want people and businesses to move on with their lives without worrying about being sued. States and the federal government set statutes of limitations for civil and criminal actions. Each state legislature wrote dozens of statutes of limitation.
The length of time a creditor has to file a lawsuit depends on the
- Consumer’s state of residence
- Type of debt
- Contract with the lender (more about contracts below)
For example, many states allow more time for creditors to file suit to collect on closed-ended consumer loans, such as vehicle loans, than on credit card debts or spoken contracts. Most states give credit card issuers three to four years to file suit after default, but some states allow as many as 10 years. See the Bills.com Collection Laws and Statute of Limitations page.
The page I just mentioned contains a list of limitations by state. If a creditor files a lawsuit after the allowed time, the court will usually throw the case out and not allow the creditor to file suit again (called dismissed with prejudice).
However, the defendant must raise the issue of expired statute of limitations in a written response to the lawsuit, or else the court will not know that the statute of limitations has expired. Although the periods vary from state to state, there is only one (Ohio) that is longer than 10 years.
One exception for Wisconsin residents: Wisconsin outlaws lawsuits against consumers in cases where the Wisconsin statute of limitation has passed.
What a Statute of Limitation is Not
The passing of the statute of limitation does not mean a creditor cannot file a lawsuit against a consumer in most states. The passing does not mean the debt is canceled or extinguished, or must be removed from a consumer’s credit report. It does not prevent a creditor from contacting the consumer to collect the debt.
A statute of limitations, in most states, is just a tool for lawyers to use as a defense in a lawsuit. It is an affirmative defense the defendant must raise in a timely manner before the conclusion of the trial.
Choice of Laws and Tolling
The statute of limitations for a debt can be set in a contract with a choice of laws clause. A credit card issuer can write a clause that says something to the effect of, “Our headquarters may be in New York, and you may reside in Ohio, but if a dispute arises from this contract, we agree to use the laws of Delaware.” Most judges despise choice of laws clauses, and will make efforts to find reasons to ignore them in favor of their own state laws. However, the US Supreme Court ruled that choice of laws clauses in consumer contracts conform to the Constitution. Therefore, any statute of limitations analysis should include a review of the contract the consumer signed.
Tolling can also affect a debt’s statute of limitations. Tolling refers to a time-out on the running clock of the statute of limitations. In some jurisdictions, a debtor can take an action that is viewed as preventing reasonable efforts by the creditor to collect on the debt. For example, if a debtor leaves the country for a few years, the court may decide that because the creditor did not have a fair chance to collect, the statute of limitations was not running during the time the debtor was abroad. Tolling rules vary from state to state.
Resetting a Statute of Limitations
For debt, the statute of limitations starts either when the debtor last made a payment, or when the payment was due. Once the statute of limitations on a debt is reached, the creditor may use the court system to collect the debt. However, if the debtor/defendant raises the affirmative defense of statute of limitations in a timely manner, the court must dismiss the case. A court will not raise the statute of limitations defense on its own — the court is a neutral referee — the defendant must raise this defense.
A defendant can reset the clock on a statute of limitations back to zero in two ways:
- Make a payment
- Acknowledge the debt
Under common law, the acknowledgment must be in writing and convey the idea the consumer promises to pay the debt. Not surprisingly, many state legislatures wrote their own version of this rule. Arizona, Florida, New York, and Oregon are four such states one can find with acknowledgment of barred action rules in a minute or two using Google’s search engine.
Statute of Limitations on Credit Card Debt
States wrote statutes of limitations laws before the invention of credit cards. Some state courts throw credit card debt in the written contracts bin. Others consider credit cards open accounts, which were written with bar tabs and feed store accounts in mind that are customarily settled at the end of the month. Other state courts lump credit cards with spoken/verbal contracts. Each of these often have different statutes of limitation.
Charge Off and Statute of Limitations
Some consumers confuse charge-off and statutes of limitations. The two concepts have no relationship to each other. Charge off is an accounting term used by creditors when they move a delinquent account from its accounts receivable ledger to the bad-debt line on the general ledger. This usually occurs between 180 and 240 days from the date of the last payment. The fact an account is charged-off does not mean the debt may not be collected later. The charge-off date does not correspond to the statute of limitations on collecting a debt.
Analyzing a Statute of Limitations Issue
There are at least five key issues to a statute of limitations question:
- Did the parties agree to a choice of laws in their contract? Review the contract, and look for a “choice of laws” clause in the contract. If the contract states which state laws the parties agree to use if a dispute arises from the contract, then there is the answer to your question. However, although choice of laws clauses are well litigated, some judges take pains to find reasons to ignore a choice of laws clause.
- What are the statutes of limitations for the plaintiff’s state? The defendant’s? Assuming the litigants reside in different states, the statutes of limitations for each state may be different.
- How does each state’s supreme court look at statutes of limitations conflicts with sister states? Consult with a lawyer in your state who has consumer law experience to learn how your state resolves conflicts-of-laws issues.
- Is the plaintiff filing the case in its home state, or in the defendant’s state of residence? And if it is filing the case in the defendant’s state, is it asking the court to use a different state’s statute of limitations?
- Who is the plaintiff? If the plaintiff is the original creditor, then the court will give a great deal of weight to the choice-of-laws clause in the contract. If the plaintiff is a collection agent, then under the FDCPA, collection agents must file actions in a court convenient to the debtor. Judges like to use familiar laws and will bend over backwards to use their state’s statute of limitations. However, if the plaintiff’s lawyer creates a convincing argument that another state’s statute of limitations is more appropriate, the judge may agree.
Statute of limitations questions seem straight forward: “Which statute of limitations applies to me?” However, answering this question is tricky because a small change in facts can have a huge impact on finding the correct answer. If the facts are simple — for example, both parties reside in the same state and agree to use that state’s rules — the answer is simple. However, you need a deeper analysis if your facts are complex. Consult with a lawyer in your state who has consumer law or civil litigation experience if your facts are complicated.
Aurora, CO | March 24, 2013
March 25, 2013
Beverly Hills, CA | October 24, 2012
October 24, 2012
You mentioned you wrote a letter to the collection agent, a lawyer, about the debt in which you wrote "...I was wondering if there is a way to make payments on the debt." I think you stepped into a gray area, which I am certain is not the answer you wanted to hear. One way to view your statement is you imply the debt is yours because you call it a debt. On the other hand, you did not call it "my debt," which would edge the statement closer to an acknowledgement. To me, this reads more like a negotiation than an acknowledgement.
The general rule in California is that negotiations to resolve a debt are not viewed as acknowledgments. If courts viewed negotiations as acknowledgements, there would be an enormous disincentive to settle matters out of court. Courts want to give parties every incentive to settle matters on their own.
In future correspondence, make it clear you are not acknowledging the debt, but are negotiating to resolve a dispute. The collection agent may argue your earlier letter was an acknowledgement, but I think that stretches the facts too far. Consult with a California lawyer who has consumer law experience if negotiations get hung up on this point.
C/o Cherry Hill, NJ | September 05, 2012
September 06, 2012
The problem with the unpaid mystery fee is many schools will hold a delinquent alumnus's transcript as long as the fee is unpaid. This means if you ever want to enroll in another school, or if an employer wants to inspect your transcript, the school will refuse to cough-up a copy of your transcript.
I do not have advice you want to hear. Your choices are to ignore the bill and hope you never need a transcript, or hold your nose and pay it.
Upland, CA | August 24, 2012
August 27, 2012
July 30, 2012
July 31, 2012
In other words, when a person buys a car using a loan, it does not matter if the car is perfectly reliable and never suffers a scratch, or is totaled after a month or two, the borrower must repay the loan as promised in the contract. On to your other questions.
Charge-off, which is sometimes called write-off, is when the lender moves an account from its accounts receivable ledger up to the bad-debt line on its general ledger. Charge off is not the same as forgiveness or cancelling a debt. Charge off does not change the lender’s or borrower’s legal rights. Typically, charge off appears on a credit report 120-180 days from the first date of delinquency.
You mentioned Utah and statute of limitations. In all but two states, creditors may continue to attempt to collect a debt after the statute of limitations has passed. Creditors can, again with two exceptions, even file a lawsuit after the statute of limitations has passed. In cases where the statute of limitations has passed, the defendant may offer a statute of limitations defense. If the court accepts the defense’s argument that the statute of limitations applies, the court will dismiss the case. Unfortunately, some Internet commentators will condense what I just wrote here into, “The creditor cannot collect the debt if the statute of limitations has passed,” which is dead wrong in all but Wisconsin or North Carolina.
As I understand Utah law, the statute of limitations for a written contract is 6 years. If you stopped making payments in sometime 2005, the statute of limitations passed sometime in 2011. Therefore, the original creditor (the finance company, bank, or credit union) or a collection agent that purchased the collection account may contact you to attempt to collect the debt. It can even file an action (a lawsuit) against you. If it does, consult with a lawyer to help you file a motion to dismiss based on the passing of Utah’s statute of limitations for a written contract.
If the creditor’s collections calls and letters become bothersome, send the creditor a cease communications notice.
Oak Park Heights, MN | July 04, 2012
July 05, 2012
- Was the second a purchase money loan? In other words, did the funds from this loan go directly to escrow for the purposes of purchasing the Truckee property?
- Were you a signatory for the second? In other words, did you sign the contract for the Countrywide loan?
If the second was a purchase money loan, then California's anti-deficiency law prevents the creditor from taking any legal action (filing a lawsuit) to collect the debt. Whether the creditor may report the debt to the consumer credit reporting agencies (the credit bureaus) is a question I have not seen resolved.
If you did not sign the loan contract for the second, you may not have liability for the debt. However, the fact the debt appears on your credit report and the creditor sent you a statement for $27,000 leads me to conclude you signed the contract. On to your questions:
- The California statute of limitations for a case or controversy arising from a written contract is 4 years. In Minnesota, the statute of limitations is 6 years. Which applies? Depends on the exact circumstances. If you do find yourself as a defendant regarding this case, be sure to consult with a lawyer. He or she will craft an argument in favor of California's statute of limitations applying in your case.
- As mentioned, I am uncertain you have liability for the debt. If you did not sign the contract, then you can make an argument that even though California is a community property state, you were not a party to the contract and therefore have no liability for the debt.
My advice? Validate the debt immediately. A debt that cannot be validated may not be collected or reported to the credit reporting agencies.
If you have no liability for the debt, then dispute the derogatory with each of the credit reporting agencies that report the deficiency balance.
One last thought: Federal student loans are based on need and not the borrower's credit report and score. Also, federal student loans have many repayment and consolidation options private student loans do not. Focus your attention on applying for federal loans and grants.
July 03, 2012
July 05, 2012
Second, you mentioned you reside in a small town. Small towns being what they are, people depend on each other when times are tough. Also, word gets around in small towns, and if the supplier is known to be trusted and admired in town, I doubt you want to be known as the person who didn't pay your bills, even if they were presented ridiculously late. In other words, will you need this supplier's assistance in the future? And, what is your reputation worth to you?
Port Saint Lucie, FL | February 25, 2012
February 27, 2012
Regarding interest, states allow simple interest by default. In some cases, however, compound interest is allowed. These are typically contracts cases where compound interest is mentioned in a liquidated damages clause. Consult with a lawyer in your state for a more precise answer.
Interest rates on Florida judgments vary over time. See the Florida Department of Financial Services Statutory Interest Rates Pursuant To Section 55.03, Florida Statutes page for details.
Sanger, CA | February 23, 2012
February 23, 2012
In many states judgments can be renewed. Judgments can stay on a credit report for as long as they remain valid or for seven and a half years, whichever is longer.
I don't think that a pay for delete will work, but please report back and let us know how it goes.
Sanger, CA | February 23, 2012
February 24, 2012
Westminster, CA | February 23, 2012
February 23, 2012
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