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Statute of Limitations as a Defense to Collections

On Behalf of | Oct 8, 2012 | Consumer Protection

Often people contact us complaining that they are be garnished, or otherwise collected upon, from a debt that is very old.  They ask why a collector can still come after them, and ask whether the “statute of limitations” helps them at all.  Its seems that these buzz words are giving consumers confidence that they are safe from old debts because the collector or creditor has left them alone for quite some time.

While the statute of limitations can act as a defense in some circumstances, consumers consistently misunderstand what this means and how it can be used to their benefit.  Thus, to properly explain how to use the statute of limitations as a defense, it is important to understand what a statute of limitations actually is.

A statute of limitations is a time limit one has to bring a lawsuit against another for a perceived wrong committed.  For instance, if one were hurt in a car accident, there is a limit of time they have to actually file the lawsuit against that person they claim was at fault.   Once that time passes, the injured party no longer has a right to sue for their loss.  That time limit starts to run from the date of the accident.  Thus, if there is a two (2) year statute of limitations for personal injuries, a lawsuit would have to be filed within two (2) years from the date of the accident, or the right to recover from that accident may be forever lost.

In the context of a creditor pursuing a debtor, it is a little different than a car accident.  The questions to be answered are from when do we start counting, and how long is the statute of limitations?  Each state handles this differently.  In most instances, the kind of case the creditor brings against the debtor is a “breach of contract” case.   Therefore, one must first determine how long the statute of limitations is in their state, or the state where the contract was first entered into, for a breach of contract claim.  Our website provides you the answers.  See our Statutes of Limitations page to determine how long a creditor has to sue.    There is a broad range from state to state from as few as four (4) years to as many as ten (10) years.

However, once we know how long the statute of limitations is, we still have to determine from when do we count.   As the case is typically called a breach of contract case, the date to start counting is the date of the alleged breach of  the contract – or the date the contract is broken.  A debtor has breached (or broken) a contract when they have discontinued to keep up their end of the deal of paying for the credit.   However, creditors don’t necessarily consider it a breach just because one or two months have passed without payment.  Creditors consider it a breach when an account is charged off -that is, the creditor has, after 180 days of non-payment, determined that the debtor is not paying at all, and has charged off the account as a bad debt.   Therefore, the time the creditor has to sue you runs however many years the statute of limitations allows from the date of the charge off (or 180 days from the last payment).  Still, a consumer must check their state laws as agreeing to make a payment at some point after the charge off does in many states re-start the statute of limitations period and allow the creditor all that time anew to sue.

A consumer that has not been sued or sought after for a debt for several years since the last payment was made, may have a defense to the debt because of the statute of limitations.   Turning back to the consumer that is suffering from an ongoing wage garnishment, the statute of limitations may not present a defense.  A lawsuit may take years for a suing creditor to locate the debtor, locate where they work, and serve the garnishment papers.  For the statute of limitations, all the creditor had to do was get the lawsuit filed on time.  If a debtor finds him or herself being garnished, and it has been a long time since they heard about the debt, they must first find out when the creditor actually filed this original lawsuit in the first place.

There are other protections to the consumer that is being surprised by the garnishment.  If the consumer was never notified of a lawsuit from being filed and can prove that they were never served properly with the lawsuit, the consumer can go to court to vacate the judgment and can present a statute of limitations defense.

The statute of limitations can be a powerful defense for consumers if properly understood.   If you are facing collection of an account that has not been paid in several years, CONTACT US for a free case review.  SmithMarco, P.C., has over 30 years of combined experience practicing law protecting the rights of consumers around the country.