Statute of
Limitations
All about the Statute of Limitation for Debts, Judgments
& Taxes
The statute of limitations (SOL) is a powerful tool for consumers'. The Statute of Limitations can thwart off lawsuits and collectors. If a debt is legally expired, you can escape being sued or having to pay an old debt. Likewise, it can be detrimental because many debtors unwillingly renew the SOL by making a partial payment or a written promise to pay which can extend the statute. The statute of limitations is a civil code. Each state has its own statute, For instance, the code section in Cal. Code of Civil Procedure § 337.
The legal meaning for statute of limitations is: THE TIME OF COMMENCING ACTIONS-Time allowed that litigation-lawsuit can be brought. (See complete legal meaning of Statute of Limitations)
After that time, it has expired. Statute is a law. Passed by legislation and varies by state. The original statute of limitations begins at the onset of the contract signing (see more below for time barred debts). Statute of limitations vary from state to state but it is usually 4-6 years depending on the state. The term statute of limitations means the time allotted to legally enforce the debt. If a statute expires and someone sues you, It is up to you to bring the expired SOL defense to the other parties attention.
If you say nothing or do not bring up the expired statute then the judgment can be entered. Don't assume it means the other party is barred from attempting to collect. It simply means that your defense is the expired SOL not to enforce the lawsuit. If your statute of limitations has expired that means that the debt cannot be enforced by lawsuit, that does not dismiss the debt and the creditor can still leave it on your credit for 7 years (excluding some public records, those can remain for 10 years) but legally you do not have to pay it if the statute has expired.
Federal Taxes
Tax liens remain on your
credit reports for
7
years from date satisfied not filed. If they remain unpaid
they can stay longer, however they are only collectable for
6 to 10 years with some provisions. Keep in mind that the tolling of the
time (SOL) can be extended by
offer
in compromises and payments.
What about State Taxes
Federal taxes do expire but many states have no SOL for state
owed taxes. To know for sure, you need to read your state's
codes. Go to your Attorney
General page for your state. From there locate
your state laws and check. Usually it is under Taxation and
Finance Code. Remember if you read the code and cannot
find an actual SOL for collecting the tax then the absence
of such usually means there is NO SOL. You simply must read
your
own state law to see
what the rule is for taxes. Some report (most) from date paid
while others report from date opened or filed.
Are there separate SOL's for debts &
credit reporting?
Many people confuse the statute of limitations to collect
a debt with the time a debt is
allowed
to remain on your credit reports. The two are separate.
Credit bureaus are allowed a certain time frame to report
debts.
Another big fear is that paying
it will extend the time it is allowed to be reported on your
credit. Debts are reported from FIRST delinquency or written
off date, not by last activity or last payment. Exclusions
would be tax liens, they remain from date paid for 7 years
and can remain indefinitely if unpaid. Paying a debt will
not restart the clock for reporting it but you could restart
the clock for collecting it, so if you pay it,
either
pay it in full or restrictively, as to have no worries.
A promise to pay or partial payment
can renew the statute in many states (you need
to read your own
state's rule
to know for sure) many people think that only a renewed promise
to pay does this. That is not the case. Either or can
renew the statute.
Signed Under Seal can extend SOL
A "signed under seal" provision is where some creditors
will add it to the contract for further protection. It depends
on the contract but generally adding a "signed under
seal" will enforce a longer SOL. The seal must be obvious,
usually next to the terms on the front page. One also must
consider state laws because some may enforce it while others
do not. The best thing to do is read the Civil Procedure Code
for your state and see if there is a mention of it. Not many
creditors use a signed under seal but some do. Courts have
long recognized that the presence of the word "SEAL"
next to and on the same line as the signature of an individual
debtor on a promissory note is legally sufficient. Credit
Unions often use seals as added protection in case of default,
bankruptcy or expired SOL.
In every state where there is the right to file suit on a debtor there is also a time within that suit may be filed. This is a powerful tool if you are aware of it. Just remember a partial payment, promise to pay or regular payment on the debt can remove the limitation and the period can be renewed but again, keep in mind that it depends on state law.
Some states don't allow it to renew from payment while others allow the "tolling of time" to start again. Of course ,we cannot list every state rule here, there are too many- so unfortunately you will have to look at your state rule and probably the state rule for where the debt was incurred. I know this can get tricky but since the debt collector may be able to choose the state with longer SOL then possibly they too can choose the one with the extended SOL. Here is an excellent case study of a collection agency vs. debtor. The debtor is using the SOL defense. There is also a very common question about statutes of limitations and which state does the debtor follow.
What state should I use in figuring out
the Statute of Limitations?
The state statute can be either where the debtor lives or
where the contract was entered into. The creditor does have
the right to choose the state with the longer statute but
the creditors or collectors location is moot. This is covered
in Section 811 of the FDCPA and in Consumer
Credit Protection Sec. 1692i.
Here is the rule;
CONSUMER
CREDIT PROTECTION Sec. 1692i.
--2) in the case of an action not described in paragraph (1),
bring such action only in the judicial district or similar
legal entity -
(A) in which such consumer signed the contract sued upon; or
(B) in which such consumer resides at the commencement of the action
NOTE: Actions involving Real Property securing your obligation --the venue is different. The rule is: Any debt collector who brings any legal action on a debt against any consumer shall -
(1) in the case of an action to enforce an interest in real property securing the consumer's obligation, bring such action only in a judicial district or similar legal entity in which such real property is located.
What to do if the debt is not
expired & you owe it
You may be "Judgment proof" for a time if you are
unemployed, on disability, retired, have no money or assets
or similar. If a creditor or collection agency attempts to
sue you and you are "Judgment proof" then you need
to respond to the judgment and state so. Not doing so or ignoring
the lawsuit may land a judgment on your credit reports. Try
getting that off! If you do begin to work again, up to 25%
of your pay could be
garnished.
You should never ignore a
judgment.
Even if you are sued you can often
negotiate
a reduced payoff to avoid the
judgment
being entered. This will show as a "settled debt"
on your credit reports rather than a nasty judgment.
You also need to consider the following
before you decide to pay.
--Is the debt valid? Remember, you have a right to have the
debt validated.
--Was the product/service defective?
--Are the collection fees and interest rates higher than the
state allows?
See your state
collection laws for info.
--Has the collection agency violated any of your rights under
the
Fair Debt Collection Practices Act?
The SOL is very important when you have past due debts or charged off debts that you cannot or do not want to pay back. When a debt is created, there is an original SOL The date of the contract signing. If you default on a new debt - meaning you never even made one payment then the SOL would be the date the contract was signed by you. If you default on a debt that has had payment(s) then the SOL would be from the date of last payment. Why does this matter to you? Because many- in fact millions of dollars in debt nationwide have an expired SOL but consumers rarely know this. If you pay back the debt after the SOL has expired then you have just renewed it therefore making it collectable for another number of years.
Additionally there is also an SOL for how long the debt can be reported on your credit. That statute is covered in the Fair Credit Reporting Act. The key to better credit is to acknowledge that a charged off or seriously past due debt will NEVER go current again. It will either be reported as a "paid charge off" or "paid collection account" and neither are good for you. Using an expired SOL as leverage to negotiate a better credit rating can really improve your credit reports. By offering the creditor or agency a restrictive offer or telling them to cease and desist because a debt is legally expired- you can definitely have the upper hand. Let's face it, if you have to pay a derogatory debt shouldn't you try to get the best deal possible? Of course. Don't count on the collection agency or creditor telling you this either!
What about BK dismissed debts?
If a debtor files bankruptcy the tolling of time stops. If
the bankruptcy is subsequently dismissed then the tolling
of time begins where it left off. It does not begin from the
date of dismissal.
Remember,
SOL's can be amended and change over time so to be sure your
SOL below is correct, check out collection
laws for your state.
What category does my debt fall under?
Many times you cannot figure out if your debt is a contract,
open end or revolving. Below we address this issue.
--Oral Contract: You've agreed to pay money back via a verbal agreement. This can include your word, his word and a witness. These are harder to prove but are recognized as "oral contract".
--Written Contract: You have signed a contract or document promising to repay a loan or debt. Example is medical bills, cell phone bill, closed end signature loan or some secured loans like auto.
--Promissory Note: It is like a contract loan except it contains more information about payback. Such information can be interest, principal, late fees etc. A home loan or HELOC can be a promissory note.
--Open Ended Accounts: Just what it says, "open end" ie: a credit card debt or revolving line of credit.
Is a check considered a written contract,
what is the SOL for checks?
A check is not considered a "contract" although
some may argue that it is (because it's a signed promise to
"pay"). A contract requires consideration by both
parties (an offer and acceptance) and consists of nothing
more than an (enforceable) promise to pay by one party
but no contract was drawn up by the other party. What it is,
is a negotiable instrument and therefore subject to governing
UCC (uniform commercial code) if there is one for the state
in question. UCC is where you usually find the time limitations
on checks. Many states have their own
specific (SOL) statute of limitations dealing with checks.
Those would trump any general statute of limitations and even
the UCC limitations.
The UCC is not a federal statute but rather a system set up to structure commercial transactions. Since it isn't a federal rule there would be no supremacy clause (as in who rules state or federal) but rather the state could choose to adopt it or not. Most states have adopted it. According to FindLaw, a more specific statute rules over (trumps) a more general statute. Therefore if a certain state has a more specific statute it will often trump (rule over) the UCC entirely. Bottom line: read the UCC but read the state rule as well and see which one applies--, is more specific or offers more protection. You will usually find the SOL for collecting the check in the state code.
Other Debt Collection/Debt Collector News Media Articles
Learn What Your Rights Are:
Fair Debt Collections Practices Act
Brochure on Fair Debt Collection from the Federal Trade Commission
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