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Statute of Limitations for Debt

debt collection and tax season concept with due date on calendar

Debt can feel like a burden that follows you for life. It can impact your credit, sap your resources, and make it more difficult to buy a home, obtain secondary education, or even get a professional license. Creditors are, however, subject to certain legal limitations. If you get a call about a very old debt that’s been past due for years, there’s a chance you don’t actually have to pay anything at all. Read on to learn about the statute of limitations for debts in California and how it might impact your rights. If you are dealing with an overdue mortgage or other debt struggles in Southern California, call a knowledgeable California consumer advocacy and debt collection defense lawyer for advice and representation.

What is a Statute of Limitations?

The statute of limitations is the time limit for filing a legal claim. Nearly every type of legal claim has a statute of limitations. The statute of limitations for a given legal claim depends on the nature of the claim and which state’s law (or federal law) applies.

For example, in California, you have two years from the date of a car accident to bring a personal injury claim against the at-fault driver, barring certain exceptions. If you wait longer than two years to file a lawsuit based on that car accident, your case will likely be dismissed.

What is the Statute of Limitations for Debt in California?

Debt is no exception to the general rule about legal claims. Debt is essentially a legal right possessed by the creditor to collect certain amounts from the debtor. If the debtor fails to pay, the creditor can commence a collection action and pursue relevant remedies. That debt, like any other legal right, is subject to a statute of limitations.

In California, the statute of limitations for most types of debt is four years. That includes medical debt, mortgage debt, credit card debt, auto loans, and others. One notable exception is state tax debt: The state has a massive 20-year statute of limitations to collect back taxes. On the other hand, debts accrued based on an oral agreement (as opposed to a written contract) have a statute of limitations of only two years.

That means that if you incurred a debt over four years ago, outside of certain exceptions, creditors cannot obtain a judgment to collect on that debt. If you have an account that has been cold for more than four years and you are sued on that debt, your lawyer can use the statute of limitations to get the claim dropped and avoid incurring a judgment against you.

It’s important to keep in mind that the statute of limitations is about whether someone can obtain a judgment against you, not whether you technically owe the money. An old debt can still affect your credit rating, for example, but the creditor will not be able to obtain a judgment against you. There is a separate time limit for reporting a debt to your credit rating agency.

When Does the Limitations Period Start?

Knowing the statute of limitations is only half the battle. You need to know when the limitations period starts running. Just because the statute of limitations for debt is four years does not mean, for example, you can stop paying your mortgage premiums four years after buying your house.

For debt, the statute of limitations clock starts ticking on the date of your last account activity. That is usually the date of your last payment. There may be other triggers, however, such as the last time you used the account, made a promise to pay, or entered into a payment agreement. Talk to your lawyer about your debt to find out if your debt is past the statute of limitations.

Debt Collectors and Resetting the Statute of Limitations

Knowing the statute of limitations on your debt is important. Professional debt collectors often buy expired/time-barred debt for pennies on the dollar, knowing that most people are unaware of their legal rights. They’ll buy an old debt, call up the debtor, and get the debtor to agree that they still owe the money or enter into a payment plan. If the debtor knew their rights, they would simply refuse to pay. An experienced debt relief attorney can evaluate your claims and let you know whether you still owe a debt before you agree to any kind of repayment.

If you are dealing with mounting debt and considering debt relief options including bankruptcy, please contact Rounds & Sutter for a free, confidential consultation. With offices in Ventura, Santa Barbara and Westlake Village, we represent clients throughout Southern California, offering seasoned, effective legal counsel in the face of life’s challenges.