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Statute of Limitations for Collecting on A Debt

A statute of limitations is the time period during which someone can be sued for a legal violation. In California, the statute of limitations for being sued for a breach of contract (the most common claim in debt collection) generally is four years. If the debt is older than four years from the date of the breach (i.e., the last payment), the debt is deemed “time-barred.”

A debt collector can make a request that a consumer pay a debt even though it is time-barred. However, a debt collector cannot sue a consumer on time-barred debt, or even threaten to sue a consumer on time-barred debt. Suing or threatening to sue on a time-barred debt is a violation of the fair debt collection laws. Consider the recent case of McCollough v. Johnson, Rodenburg & Lauinger, LLC, 2011 WL 746892 (9th Cir. Mar 9, 2011). There, the Ninth Circuit Court of Appeal affirmed that a consumer can sue a law firm for violations of the fair debt collection laws when the law firm sues on a debt it should know is time-barred, even if the creditor tells the law firm otherwise.

If a consumer is sued on a debt that is time-barred, the consumer should not ignore the case, thinking that it will just go away because the debt is too old. That’s not how it works. The consumer must defend the case or the collector will obtain a default judgment against the consumer. Defending the case should not be too difficult, since the collector will not be able to prove that the default (i.e., the last payment by the consumer) occurred within the statute of limitations. The case most likely will be dismissed by the court, or by the collector once the consumer appears in court. The latter is especially true if the consumer shows up with an attorney.

If a collector attempts to collect time-barred debt from a consumer, the consumer should never agree that the debt is owed or make a payment to the collector, no matter how small. Doing so could “re-age” the debt and start a new statute of limitations. In other words, the debt would no longer be time-barred. Debt collectors will use all sorts of tricks to get consumers to re-age the debt, like asking for very small payments. Consumers need to be aware of these tactics.

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