- 8 min read
- 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.
- Understand what actions you take can extend the SOL beyond the standard time.
Table of Contents
- How to Tell Which Statute of Limitations Applies to Your Situation
- What Is a Statute of Limitation?
- What a Statute of Limitation is Not
- Choice of Laws and Tolling
- Resetting a Statute of Limitations
- Statute of Limitations on Credit Card Debt
- Charge Off and Statute of Limitations
- Analyzing a Statute of Limitations Issue
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.
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The length of time an original creditor or collection agent has to file a lawsuit depends on the following:
- Consumer’s state of residence
- Type of debt
- Contract with the lender (more about contracts below)
For example, many states allow more time for original creditors and collection agents 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 3 to 4 years to file suit after default, but some states allow as many as 10 years. See the Bills.com page collection laws for every state in the US.
Statue of Limitations by State
Here’s a page containing a list of statute of limitations by state. If an original creditor or collection agent 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) if the consumer/defendant raises the statute of limitations defense.
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. Courts will not raise the statute of limitations defense on behalf of the consumer. Therefore, you must raise the statute of defense if it is available to you. Although the periods vary from state to state, there is only one (Ohio) that is longer than 10 years.
Two States with Separate Rules
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.
What a Statute of Limitation is Not
The passing of the statute of limitation does not mean an original 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 an original creditor or collection agent 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.
FDCPA Violations and SOL
Most courts find it is a violation of the FDCPA for a collection agent to pursue a debt collection lawsuit against a consumer after the statute of limitation expired (Kimber v. Federal Financial Corp. 668 F.Supp. 1480 (1987)). Some collection agents still sue in hopes the consumer will not know this rule.
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 a statute of limitations clock back to zero two ways:
- Make a voluntary 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.
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.
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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 party filing the lawsuit 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, under the FDCPA, collection agents for a credit card or similar debt must file a lawsuit either in a court where the consumer lives, or the judicial district where the consumer signed the contract (15 USC § 1692i). 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.
Dealing with debt
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q3 2023 was $17.291 trillion. Housing debt totaled $12.489 trillion and non-housing debt was $4.802 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Colorado, 21% have any kind of debt in collections and the median debt in collections is $1682. Medical debt is common and 11% have that in collections. The median medical debt in collections is $693.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.