California Statute of Limitations for Contracts
- 7 min read
- 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.
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?
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.
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 in California
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.
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 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.
Dealing with Statute of Limitations in California
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 a clue to the contract breach date. Ignore the charge-off and first reported dates, as those are not significant for learning your date of the breach. The statute of limitations has likely run its course unless you fit into one of the tolling exceptions listed above. However, as discussed 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.
Did you know?
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2022 was $16.91 trillion. Student loan debt was $1.60 trillion and credit card debt was $0.99 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Each state has its rate of delinquency and share of debts in collections. For example, in Missouri credit card delinquency rate was 4%, and the median credit card debt was $417.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.
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?
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.
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.
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.
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?
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.
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??
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.
Hello If you could please share your thoughts on the following, I would greatly appreciate it. Current situation- Have had my current bank account for well over 20 years, in that time opened up 2 credit cards from such bank. Unfortunately defaulted on both, and have gone to collections. But I still have my checking account with the same bank. The credit card accounts were last paid on November 2014. It being 2020 has the SOL closed? Reason I am reaching out to ask, is because in the near future will be receiving a large amount of funds from my house refinance we just went through, and the funds will be wired to my existing account. Will the bank have access to collect these past due funds or will the SOL protect that? This account is also the same that I receive my SS retirement every month. Thank you for any insight you may have.
Luna, I am happy to share some information, with the understanding that I am not giving you legal advice.
Do NOT put the money in the bank account. The bank almost assuredly possesses what is called "the right to offset." The language giving them this right would have been specified in the agreement If you are delinquent on one account and have another account with the bank they can use funds in your account to pay off the debt. This is separate from the statute of limitations on debt (SOL), which is four years for a writtent contract in CA. You would use the SOL as a defense if you were sued, but it is separate from the right of offset.
The reason they could come after this money and ot your Social Security is hat your SSI has stronger protections, by law. Up to 2x the amount of your award is protected if a judgment-creditor were to try and levy you bank account.
Bottom line, open a new account somewhere else. Whatever solution you find, don't let the funds hit an account your current bank because they don't need to take any steps before asserting the right of offset. You won't get a warning, just find out after the fact when money you thought would be there is not.