Living with debt is a struggle for many Americans. It can be hard to plan future financial purchases with loans and credit card debt weighing you down. If you live in California, you may wonder about the statute of limitations on old debt. Read on to learn whether debt collectors can still collect after a few years.
How Does Avoiding a Debt Collector Hurt My Credit?
When a Debtor owes money to a company, that company can hire a debt collection agency to recover the unpaid debt. A debt collector can use various methods to contact debtors, such as phone calling and writing letters. However, a debt collector cannot use unfair or deceptive acts under the Fair Debt Collection Practices Act (FDCPA).
Any unpaid debt sent to debt collection agencies, such as credit card debt, will hurt your credit score. A collection debt on your credit report will ultimately decrease your credit score by a few points. Unfortunately, even if you manage to save $1,000 in 30 days and quickly pay off a collection account, your credit score may not improve. While clearing up old debts is tempting, make sure you do not make even a partial payment to a debt collector. It would be best if you first spoke with an attorney about the California statute of limitations.
The Fair Credit Reporting Act (FCRA) gives consumers the right to dispute inaccurate information on a credit report. However, a credit reporting agency cannot remove accurate negative information. The good news is that negative information eventually falls off your credit history. Debt collection accounts only remain on a credit report for approximately seven years. At the end of seven years, you can have a clean slate!
What Is the Statute of Limitations on Consumer Debt?
A statute of limitations is a law that sets the maximum time a party has to take legal action. According to the Code of Civil Procedure Section 337, California’s statute of limitations on written, promissory, and open agreements is four years. The statute of limitations deadline on oral contracts is two years.
The beginning of four years starts on the date of the last payment or charge on an account. If a debtor stops paying off the debt, there is a contract breach. A breach of contract typically occurs when an account gets a charge-off or is delinquent for 180 days. You can use the statute of limitations as a defense if a creditor takes you to court and it has been more than 180 days since the last payment.
Remember that you may be subject to specific state laws depending on the financial institution you work with. Credit card companies may follow a particular state law, even though they have locations throughout the United States. For example, Capital One follows Virginia law, which has a 3-year statute of limitations for open-ended accounts.
Which Statute of Limitations Applies?
Credit card companies and debt collectors take consumers to court for various reasons. You may face a debt collection lawsuit for mortgage debt, Medical debt, credit card debts, etc. If you are carrying old debt, you may be able to use a statute of limitations defense. If the debt is old enough, the creditor cannot sue or report the debt to credit reporting agencies.
California law may not apply to your case, depending on your specific financial debt. The best course of action when summoned to court by a credit card company or lender is to speak with an attorney. An attorney can help you determine which statute of limitations applies and build a defense case.
Can Anything Stop the Statute of Limitations Clock?
Although California’s statute of limitations on consumer debt is four years, the clock can stop.
When the statute of limitations tolls, the clock has been legally suspended for a brief period. A toll can occur if you leave the state of California, sign a voluntary agreement, or experience an unforeseen circumstance. The clock can also stock if you file for bankruptcy, but the bankruptcy court does not discharge your debt. Resuming a statute of limitations typically requires a written agreement between you and the creditor. This agreement would detail the debt owed, monthly payments, and terms and conditions.
These are a few alternative options to a written agreement:
- Oral Agreement — This type of agreement does not need a written contract.
- Promissory note — You can use a promissory note if it specifies the installment details, interest rate, and payment deadline.
- Open-end Accounts — You do not need a written agreement for open-end accounts, such as credit cards with revolving credit.
Does All Debt Have a Statute of Limitations?
Unsecured debts do not always have a statute of limitations. For example, federal student loans and child support are without a statute of limitations.
Many students take out federal and private loans to help pay for higher education. Private student loans are written contracts subject to California’s four-year statute of limitations. However, federal student loans do not have a statute of limitations and are exempt from bankruptcy. The US government can collect on these debts for as long as necessary.
How To Find an Attorney for Debt Collection Lawsuit
You can use a lawyer referral service if you don’t know where to start looking for an attorney. This service can connect you with an attorney with experience in consumer law, debt collection defense, or the Fair Debt Collection Practices Act (FDCPA). You can also find referrals through the American Bar Association website.
Hiring an attorney can be an expensive process. The hourly cost ranges from $100 to $400 in the United States. The average low rate per hour in California is $150, while the high rate is $420. Many people use fast cash loans online to afford the high cost of attorney fees. For example, you could apply for a $5,000 loan with bad credit. However, the Constitution guarantees free legal help for low-income consumers charged with a crime.
If you have a low income, you may be able to qualify for legal aid if a court decides you are “indigent.” Indigent means a person does not have sufficient income to afford a defense lawyer in a criminal case. When you appear in court, you can request the appointment of a public defender. A public defender program may charge an application fee, but the cost is typically low.
For more info about debt collectors, credit best practices, or even zombie debt, check out the rest of the CreditNinja Dojo!