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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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California
IN THIS ARTICLE:
  • 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.

Lawsuits Limited in Only Two States after SOL expires
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.

Know Your Rights - Collection Agents
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

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  • C
    CR Denner,
    Sep, 2020

    I know that the statute of limitations in CA is 4 years, unless it is the state, which is 20 years. What is the statute of limitations for debt to the County of Sacramento for unpaid utilities that are 12+ years old?

    • 35x35
      Betsalel,
      Sep, 2020

      I am not a lawyer, so I can't give you legal advice. I will share some thoughts with you, but with the understanding that it isn't legal advice.

      As explained in the article, even if the statute of limitations has expired there are events that can toll a statute of limitations in California. It is important to respond to any summons or complaint.

      If you want an answer to a specific case, then consult with a California lawyer who has consumer law experience if you receive notice of a lawsuit.

  • F
    Fernando Urroz,
    Sep, 2020

    Hi Bill, I am facing a breach contract lawsuit from a creditor that assumed a 2nd mortgage debt form another creditor. All banks, transactions, properties, and people resided in California at the time the contract was written. There was a clause in the contract that gave the creditor the choice to apply the statute of limitations (SOL) from either California or Ohio, 4 years and eight years respectively. Since everything took place in California, can they choose Ohio's? Would the California SOL supersede that of Ohio's? The breach took place in 2009 during the housing crisis of 2007-10. During this time, the loan was sold three times to the current creditor.

    • 35x35
      Daniel,
      Sep, 2020

      Fernando, I would do you no favor by answering your question. This is a very important issue and you should speak with a licenesed attorney. 

  • A
    Ali,
    Mar, 2020

    My wife has a credit card debt from 2014 in Washington. A law office made us make some payment in 2018 then we moved to California. They are treating to sue but we both are retired. How should I proceed?

    • 35x35
      Daniel,
      Apr, 2020

      Ali, you are asking for legal advice. I can't give legal advice. Only a lawyer can. I will share a few thoughts, but you mustn't consider it legal advice.

      You don't say how much the debt and whether you have any assets. Assuming your only income is Social Security and you lack assets, then there isn't much they can do to compel you to pay them. They can sue you and get a judgment, but it will be very hard for them to collect. It would require going after your bank account, which has certain protections if it is the account to which Social Security is directly deposited.

      You could choose to disclose the details of your situation to them, proving you lack the means to pay and your income is protected from garnishment, they may choose not to go to the expense of suing you, though they can if they want.

  • T
    Thomas,
    Feb, 2020

    I live in California. I have 2 judgements which both remain on my credit. One for $557 is from 2003, and another $2017 from 2013. I would have thought the 2003 would have dropped off by now?? Help please??

    • 35x35
      Daniel,
      Feb, 2020

      Thomas, have you tried filing a dispute with the credit bureua(s) that still report this? Do so for any bureau reporting it and see if it comes off or if they provide a reason why it hasn't.

  • DH
    Derek,
    Jul, 2018

    I'm a resident in Minnesota, and I am being sued by a debt collector trying to invoke the SOL from California on student loan debt. The loan originally went into default in December 2010, and no payments had been made since then. I received a Summons in Feb. of 2018, and responded that the debt is outside the SOL in Minnesota, which is 6 years. Yesterday I received an Amended Summons, stating they are invoking the SOL from California, being that is where the loan originator is stationed. Being the SOL in California is 4 years, I couldn't understand why they would do that. Then I read the next paragraph where they are claiming that the SOL doesn't begin under California state law on an installment loan until the lender demands full payment of the loan balance, which they are claiming is when I was originally served the Summons in February 2018. I can't seem to find proof of that anywhere, and it makes no sense to me. Any help would be greatly appreciated.

    • 35x35
      Daniel,
      Aug, 2018

      You should consult with a lawyer, as lawyers are the only proper source of legal advice. 
      Here are some thoughts, given with the understanding that you don't consider them legal advice.

      Continue to make the SOL argument. Look at the language of the original loan agreement. It likely specifies when you are considered in default, which is when the SOL should start running. I don't buy the argument that a firm can essentially have an unlimited SOL by not seeking payment in full.

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