A creditor must file a lawsuit with certain time limits to keep a debt alive.
If the creditor fails to file suit before the deadline then he loses the right to sue. The deadline is called the “statute of limitations”.
Clients assume it’s a simple matter knowing if the statute of limitations has expired. But in practice, it can be complicated. It’s particularly complicated when you’re dealing with a claim against a doctor or lawyer. But I’ll just deal with the simple situations here.
The first complication is determining what state’s laws apply. You might think that because you live in California the laws of California should supply the time limit. But, in the case of a credit card (or other written agreement) language in your card agreement may call for the law of the card issuer’s home state to be applied. That language (requiring that the law of the state where the card was issued to apply) may or may not be upheld if your case were to go to court.
If you still have your credit card agreement you can look at it to see what it says about which state laws shall provide the statute of limitations. But my clients can rarely find the credit card agreement.
If you ask the creditor they are supposed to send you a copy. You can also request your agreement from the issuer. Federal law may require the issuer to provide it on your request. But it’s difficult to get them to comply. Also, the account is usually in the hands of a collection agency or attorney.
Here is a site where you can look up credit card agreements:
Let’s assume California law applies. Under California law, written agreements are generally covered by a 4-year statute of limitations. CCP 337 This time limit should apply to credit card debts.
However, if the debt is on a negotiable promissory note payable at a definite time the statute of limitations is 6 years. Let’s say you took out a $50,000 bank loan due on a particular date and you default. The statue of limitations expires 6 years from the due date.
Often a promissory note is due “on-demand”. If that’s the case the statute of limitations expires 6 years after the demand.
Many of my clients owe the bank money on a personal guarantee they made for a loan to their corporations. The corporation may have been dissolved but my client still owes the money on the personal guarantee. In that case the statute of limitations is 4 years.
Often when a credit card company sues the sue for “account stated”. This refers to the common situation where the creditor regularly sends the debtor bills and the debtor has the ability to review and then object to the bills as received. So long as there has been a written agreement the statute of limitations is 4 years.
Once in a while, my client will owe money on an oral agreement. The statute of limitations on an oral agreement is 2 years.
The statute of limitations for fraud is 3 years.
Another question is when does the time limit set forth in the statute of limitations begin to run. The answer is that the clock begins to run when the breach of the obligation occurs. When the client failed to make a payment that was due the time limit begins to run.
Once in a while, we run into the situation where the running of the clock is paused. Part of the time between the breach of the obligation and the time limit isn’t counted. This is referred to as “tolling” of the statute of limitations.
The following events toll the statute of limitations:
* The amount of time the debtor was out of state
*There is a payment on a promissory note.
*There is a written acknowledgment of or promise to pay. One must be careful about this one. Let’s say it’s been three and one-half years since the default. The statute of limitations is set to expire in 6 months. You are contacted by a collection agency and they convince you to sign something agreeing to the debt and to make a payment. You make a payment or 2 then stop. The time limit on the statute of limitations may have started over by you making this agreement.