What Is The Statute Of Limitations For My Credit Card?

If you are getting hounded by a debt collector, they may be threatening to sue. By law, the debt collector can sue you, to try to get a judgment against you for any debt you have defaulted on. However, they have to do this within a certain amount of time. This time limit is called the Statue of Limitations, or SOL.

Each state has its own set of laws regarding SOL. In fact, each type of debt has its own statute of limitations. There are really two primary kinds of debt most of us get into; an open-ended agreement, and a promissory note. An open-ended agreement, like a credit card, has a varying balance, and not strict payment schedule. In other words, that payment amount change based on the balance of the account and the interest rate. A promissory note is commonly found in a car loan or mortgage, where all the terms are spelled out and the payments are on a fixed schedule, with fixed and well-known amounts.

In Colorado, both promissory and open-ended credit arrangements have a 6 year statute of limitations. In Ohio, promissory is 15 years, and open-ended credit has a 6 year SOL. In Arkansas, they really like the consumer, and have a 3 year SOL for both types of credit. Each state has different laws, and the SOL will vary. There may also be a variance in how the state defines the start of the SOL. In some cases, it is when the account becomes ‘due and payable’, or in other words when the creditor decides you aren’t going to pay and exercises their right to collect the full amount. In other states, it starts when the account is defaulted on, and can be reset based on other activities.

So what determines the law in your situation? That can be a bit tricky. When you fill out a credit application, you are agreeing that the company issuing credit can come after you for unpaid amounts. If you default on the debt, they have the right to collect their money, plus interest, penalties, and fees. Let’s take a look at a couple of common clauses in an agreement:

• Controlling Laws: “This Agreement shall be governed by and construed in accordance with federal law and applicable laws of the State of Florida…”
• Collection Costs: “In the event you default in the performance of any of your obligations under this Agreement … you agree to pay all court costs and collection expenses allowed by law, including reasonable attorney’s fees.”
• Default: “…All rights and remedies of the bank are cumulative and may be pursued singularly, successively, or together, at its sole option.”

You never read the fine print, did you? Well, they have you no matter how you look at it. If you default on your credit, and the reason you default is NOT the credit issuers fault, you owe them the money. How could it be their fault? Only if they have charged you for something that was NOT in the agreement, and you didn’t pay for it. Otherwise, the fees they charge are all legal, and, in fact, you agreed to them.

Now, how do they go about enforcing these clauses in the contract? Well, for one, they have fees. If you go over your limit, or you are late on a payment, they may ding you for 30 dollars or more. Most people will call in and see if this can be waived, but they have the right to collect those fees from you. Again, it is your responsibility to manage your card.

For a more significant problem, like a defaulted debt, a credit issuer will turn the account over to some collection process. This may be a debt collector, an internal attorney for lawsuit, or an external legal firm for action. When they do that, the collector will be calling to chat about the situation. They want their money, and they will do whatever they can legally to get it. They are faced with a dilemma, though, which is this: How long will it be until I can’t sue this person for the money they owe?

Lawyers have two ways of looking at the statute of limitations. In lawyer terms, a law can be looked at as procedural, or governed by the laws of the state you live in now, or as substantive, which means it is governed by the original contract. To put it into a little more human terms (sorry, lawyers!), I will walk you through an example.

Let’s take Martha, who was living in New York and took out a credit card with a major credit card vendor. Their agreement was governed by New York law. New York has a 6 year statute of limitations on open-ended agreements, so 6 years is the SOL. Martha gets hit by a layoff and ends up defaulting on a $5000.00 card balance. She gets a new job in Arizona, which has a 3 year SOL. A debt collector finds Martha 4 years after the default, and decides to sue her for the debt. Martha hires a lawyer, and they go to court.

Martha’s lawyer argues that the statute of limitations is procedural, and is set according to where she lives now. The collector’s lawyers will argue that the statute of limitations is substantive, and that the debt is still within SOL based on the original agreement. A judge then has to decide who is right.

If the collection company loses that argument, they are out money, as they cannot collect on the debt through a judgment. In Ohio, as an example, a recent ruling states that all open-ended debt is procedural, or based on where the debtor lives now. That can be in your favor (if you move to a state with a shorter SOL) or against you (if the SOL is longer in your new home state). Lawyers take this into account, and may assume that the SOL is always procedural, and take the current states SOL into account when they decide to try to pursue legal action. That way they don’t waste money having to prove they should be able to sue for that particular account.

OK, then, what causes the statute of limitations to be ‘reset’, so that they can go after you longer? The answer here is pretty simple: you make a payment of the old account. What that does is reset the clock to the date that the creditor or collection agency received the payment. So, if you are nearing the statute of limitations for an account based on where you live, making a payment will start you over.

Which leads us to a move. If you are in a state with a 3 year statute of limitations, and you defaulted 4 years ago, the collector can’t sue you for the money. If you move to a state with a 6 year statute of limitations, and the default was less than 6 years ago, a collector can sue you for the money.

So, what if you are beyond the statute of limitations in your state, are you safe? Well, probably. However, be aware that due to how backed up our court systems are, your case might not get in front of a judge for 18 months or more. The statute of limitations covers the filing date of the law suit, not the actual date in court. If a lawyer has filed prior to the SOL date, you will still have your day in court.

While this may seem confusing, it boils down to this: You can get sued as long as the statute of limitations is not passed. After it passes, they can’t sue you any more, but they can continue to pursue collections from you.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.