Statute of Limitations as a Defense to Collections

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.