A valid lawsuit must be filed in a timely manner, close to the disputed event. The basic principle is that the statute of limitations protects the defendant from lawsuits after all the relevant evidence is stale (documents are missing, and witnesses have forgotten events), and the parties need to just move on. Debtors can fail to pay their credit card debt, and if the creditor does not sue within the statute of limitations, the debtor can defend any lawsuit to collect the debt—even if the debt is otherwise valid. In California, this statute of limitation is four years.
Debtors should make a good faith effort to pay their bills, and most do. However, debtors can also get into a situation where they are unable to pay their bills, despite good faith efforts to do so. Before delaying a wait-them-out strategy, a debtor needs to understand the full picture. Here are some important details:
- Creditors can always sue before the statute of limitation expires. Once a lawsuit is filed and the debtor is served with the lawsuit, time is on the creditor’s side. If the debtor does not defend the lawsuit in time, the creditor can obtain a default judgment—and the original statute of limitations will no longer apply. A creditor can collect a judgment for years.
- The statute of limitation is only an affirmative defense to the creditor in a lawsuit. Even if the debtor has a valid statute of limitations defense, the creditor can prevail on a lawsuit if the statute of limitations defense is waived (because, for instance, the debtor does not defend the lawsuit in a timely fashion).
- The statute of limitation is not a discharge of a valid debt. The debt still exists, but debtor can prevent the creditor from collecting it through the courts.
- Since the debt still exists, the creditor still has the right to seek payment by calling and sending bills as long as they comply with state and federal debt collection laws.
- Since the debt still exists, the creditor can still report it as a delinquency to credit bureaus, as long as they comply with state and federal debt collection and credit reporting laws.
Additionally, actions by the person owing the money could reset the clock, allowing the creditor to successfully sue.
In managing credit card debts that are in collection, it is important to understand whether the statute of limitations gives you an affirmative defense. However, this may be only one piece of a complicated personal and legal situation. Assuming that the statute of limitation completely closes the matter could be a mistake.
For cases involving multiple creditors, disputes, and other complicating factors, legal representation may be needed. Please contact us to discuss your case.