Statute of Limitations and Debt Collection

Is it possible to stop debt collection in its tracks?

     There is a little something called Statute of Limitations
or SOL for short. Believe it or not, debt does expire. In other words, the legal
time limit for enforcing the collection of debt can expire; this is called the
Statute of Limitations. Every state has it’s own rules for the expiration
of debt. Most unsecured debts will expire within four (4) to six (6) years after
going into default. Some debts such as federal student loans and federal and
state taxes never expire. Judgments could have Statutes for as long as 20 years
and in some states overdue child support never expires.

     Statute of limitation applies to open ended contracts
such as credit cards and contracts for sale under the Uniform Commercial Code.
Oral agreements, promissory notes, written contracts, loans, mortgages and car
payments as well as foreign and domesticated judgments may also be covered in
some states.

     Section 811 of the Fair Debt Collection Practices
Act can be used to help determine the statute of limitations for different states.
A judgment for most debts must be obtained within the judicial district of which
the debtor resides. But, there are always exceptions to every rule, as we well
know. For example, child support orders are enforced in every state. If you
have a child support judgment in one state and move to another state, the state
in which you have the original judgments statues of limitation applies. For
signed contracts, collectors or creditors can obtain judgment in the state for
which the contract was signed. Once a judgment is obtained, if you move, the
judgment can always be domesticated to another state, depending on which state
offers the longest SoL. Concerning written contracts in regards to car loans,
mortgages, a creditor can choose to decide which state to sue in. In this instance,
you should assume that that creditor will choose the state which offers the
longest statute of limitation. A judgment can be enforced in any state. It doesn’t
matter in which state the judgment was obtained.

     Note, when a statute of limitation expires, it does
not mean that the debt goes away, it only means you can use it as a defense
to stop collectors from collecting thru the court system. Collectors can still
try to collect thru other methods. In most cases, the statute begins the moment
you sign the contract however, almost every state has their own specific rules
on running of the statutory period and have made their own provisions to adjust
this period. The term for this provision is called “toll” or “tolled”
which means to “stop the running of a statutory period for a certain period
of time.” This term is used in many states in their rules regarding the
statute of limitation or their civil codes for debt collection.

     For example, if you should happen to live in one state
in which the statute of limitation for a credit card debt is 4 years and you
do not make any payments for two years you only have two years left before the
statute runs out. In the meantime, you decide to move to another state and only
stay for a few months, and then decide to move back. The statute states that
leaving the state or making a payment tolls (stops) the running of the statutory
period and the moment you move back the remaining statutory period begins running
again. But, there are always exceptions to every rule. Say you had two years
left on the Statutory period and decided to make payments and you made those
payments for about a year and then stopped you would essentially reset the statutory
clock and your years would start all over again. Sometimes by making a payment
or making a verbal or written promise to pay can restart the clock. The above
is just an example because each state has it’s own statutory code. You
should always check with your state to see what their laws are before you take
any action.

     Even thought the statute of limitations has run out
and the time to legally enforce the debt is court is over, collectors can still
attempt to collect expired debts unless they have been discharged due to bankruptcy.
Collectors may even be able to force you into court to enforce the collection
of the debt especially if you meet the criteria for you state to extend the
statute of limitations. In this case the fact that the statute of limitations
has expired is not a good defense and will generally be dismissed in court.
Should your statute expire and you are unable to pay the debt and collectors
continue you to call you, you should send a letter stating that the statute
of limitations has expired. This letter should state that you are aware of the
expired statute of limitations defense and will use it in court. Usually by
informing the collector that you know your rights where the expiration of the
statute of limitations you stand a good chance of ending things right there.
Should you make it to court, you must make the court aware that the statute
has expired and that you informed the collector in writing. If you should fail
to appear for the court hearing the most likely outcome is that the collector
will obtain a default judgment against you.

     Unfortunately, collectors usually try to talk the
debtor into making payments to show their good intentions all the while proceeding
to judgment. Most of the time, the debtor only finds out about the judgments
when their bank accounts are seized or their wages are garnished.

     In the event that a judgment is placed against you,
that you were unaware of, you should contact the clerk of courts immediately
and ask for copies of all the court documents. You should go over each of the
documents carefully for any misinformation or incorrect information and inform
the courts. If you can prove to the court that you were not given due process,
you stand a good chance of having the judgment ruling overturned. An informed
debtor is a powerful debtor.

Glossary

Breach of Sale:
To break a contract; to not honor an agreement

Contract Under Seal:
Any written instrument with a raised or wafered (wax) seal or with the words
"contract under seal", "under seal", "sealed"
or similar words written in the text.

Default Judgment:
Granted to the plaintiff due to the defendant’s failure to act (usually the
defendant fails to appear in court)

Deficiency Claim:
Used when products or services are lacking in some way or are likely to fail
or become defective or have already failed.

Note:
A simple promise by one party to pay money to another party.

Draft:
An order one person (the drawer) to pay another person (the drawee), demanding
that the drawee pay money to a third person (the payee).

Demand Note:
Instrument of credit where the creditor (lender) can call in the note (demand
payment) at any time. Can be written or unwritten.

Domestic Judgment:
Judgment awarded by a court in state where the debtor resides.

Foreign Judgment:
Judgment awarded by a court from any state other than the state where the debtor
resides.

Judgment:
The final decision or disposition of a court in a legal proceeding that defines
how much money is awarded, to whom and any appeal rights.

Judgment Proof:
Having insufficient assets to satisfy a money judgment. However a more accurate
term is execution-proof because the collector was awarded a judgment but still
has to collect the money (the court does not collect money) and if the debtor
has no money then the judgment is useless.

Mechanic’s Lien:
To secure payment for labor or materials supplied in improving, repairing, or
maintaining real property. (Usually difficult to obtain)

Note payable at Definite Time:
Promise by one party to pay money to another party no earlier than at some specified
future date.

Open Accounts (open-ended credit):
Line of credit that may be used over and over again, including credit cards,
overdraft credit accounts, and home equity lines of credit, store revolving
accounts and other similar credit accounts.

Oral Contract:
An unwritten agreement between two or more parties. Often confused with verbal
contract, informal contract, and verbal contract, which are legally different
from an oral contract.

Probate Claims:
Claims on real property, typically on the estate of the deceased.

Promissory Note:
An unconditional promise in writing to pay a person a sum of money.

Sale of goods under the Uniform Commercial Code:
Transactions for the sale (and leasing) of goods is governed mainly by sales
laws of each state. Every state, with the exception of Louisiana, has adopted,
Article Two of the Uniform Commercial Code (UCC) as the main body of law regulating
transactions in goods. Goods are defined as all things movable and identified
to the contract of the sale. It does not include secured transactions, leases,
money exchanged as the price, or real property (land and property permanently
attached to a piece of land). To be identified to the contract a good must be
existing and one of the objects that is or will be exchanged. Transactions between
merchants and consumers and those solely between merchants are regulated by
Part Two. All transactions that are for more that $500 must be in writing.

Simple or Implied Contract:
Contract that is not under seal and can be expressed or implied, and oral or
written.

Tolling (Toll):
The term “toll”, “tolled”, and "tolling" are
used in almost all statute of limitations rules and it means to "stop the
running of a statutory period for a certain period of time".

Unaccepted Drafts:
An instrument of money was rejected i.e. non-sufficient funds (NSF), returned
check, dishonored check or draft, bounced check.

Uniform Commercial Code (UCC):
Law that governs the sale of goods and credit transactions separate from the
civil and criminal laws. Covers the sale and distribution of goods, negotiable
instruments, and the financing of credit transactions on the security of the
goods sold.

Uniform Consumer Credit Code:
Law to protect consumers obtaining credit to finance their transactions; to
ensure that adequate credit is provided, and to govern the credit industry in
general. Seven states and Guam have adopted the code

 

Below is a sample letter you can use…

Your Name
Your Address
Collector’s Name
Collector’s Address

RE: [insert account number or name of account or name of debt]:

Dear [insert collector’s name or company name],

I am writing this letter is in response to your [letter dated xx-xx-2006] (copy
enclosed) or [phone call on xx-xx-2006], concerning the collection of the above
referenced [account or date].

I do not believe I owe what you say I owe therefore I dispute the validity of
this debt. I am aware of my rights under the Fair Debt Collection Practices
Act (FDCPA) and my state laws so I letting you know that not only do I dispute
the validity of this debt, I have also checked with my State Attorney General
and verified that the Statute of Limitations for enforcing this type of debt
through the courts in (insert your state or the state in which the contract
was signed) has expired. Should you decide to pursue this matter in court I
intend to inform the court of my dispute of this debt and that the "statute
of limitations" has expired.
This letter stands as my formal notification that I consider this matter to
be closed and demand that you, or anyone affiliated with your company, cease
and desist all communications with me regarding this or any other matter except
to advise me that your debt collection efforts are being terminated or that
you or the creditor are taking specific actions allowed by the FDCPA or my state
laws.

Be advised that I consider any contact not in accordance with the Fair Debt
Collection Practices Act a violation of the law and will immediately report
those violations to my State Attorney General and the Federal Trade Commission.
If necessary, I will take whatever legal action is necessary to protect myself.
Please be advised that I tape record all phone calls and violations of the FDCPA
will be pursued.

(Sign above name)
Printed Name

NOTE: If you do not dispute the debt, do not include that in your letter just
be aware that without the statement, sending an expired Statute of Limitations
letter implies the debt is yours and is valid. Always send your letters certified
with a request "return receipt requested" and keep copies for your
records.