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Statute of Limitations on Debt Collection Actions

What is the Statute of Limitations on Legal Actions to Collect a Debt?

Statute of limitations on debt collection refers to the amount of time a party has to bring a lawsuit on a claim. In other words, it is a law that limits how long a creditor has to sue a debtor, after an event occurs that gives rise to a legal action. The purpose of the statute of limitations is to encourage those with a valid claim to file their lawsuit in a timely manner. Each state sets its own statute of limitations.

In Florida, the statute of limitations is five (5) years for debts with a written contract and four (4) years for debts involving an oral contract. In Georgia, the statute of limitations on debt is six (6) years for written contracts and four (4) years for oral contracts. Note that a credit card can fall under a four-year statute of limitation if the Credit Union cannot produce a written contract and the suit is being filed as an open account or account stated. We use the legal claim of open account or account stated to pursue credit card debts where the creditor is missing the credit card documents and cannot otherwise establish the written contractual terms.

To sue on a deficiency balance for a mortgage loan, the statute of limitations in Florida is one (1) year from the sale. In Georgia, to sue on a deficiency balance for a mortgage loan, there is a thirty-day period to have the foreclosure sale confirmed. Once that sale is confirmed, the creditor can proceed with an action to recover the deficiency balance.

When Does the Clock Start on the Statute of Limitations?

Generally, in Florida, the statute of limitations begins to run from the date of the last payment or the date that a payment was due and not paid (default date), which ever date is later. The exceptions to this rule include a deficiency balance on both loans secured by personal property (auto loan or the like) and loans secured by real property (mortgage loans) where the statute of limitations runs from the date of the sale of the collateral. Generally, in Georgia, the statute of limitations begins to run on the date that a payment was due and not paid (default date). Like Florida, the exception here is the statute of limitations on deficiency balances runs from the date of the sale of the collateral.

The statute of limitation can be tolled when a debtor takes an action that legally allows the statute of limitations to be extended. In Florida, making a partial payment of the principal or interest on a debt will toll the statute of limitations. The payment must be voluntary and a setoff (offset) by the creditor would not toll the statute of limitations. In Florida, the statute of limitations may also be tolled if the person to be sued has left the state, is hiding from process of service, or files bankruptcy, which is later dismissed. In Georgia, the statute of limitations is tolled if the debtor files bankruptcy.

What Options Remain if the Statute of Limitations has Passed?

Traditionally, the statute of limitations was only a limit on legal action. The running of the statute of limitations did not eliminate the debt nor did it eliminate the creditor’s right to continue to legally collect the debt outside the legal process. However, that view of the law is changing. With the rise of consumer protection laws, and consumer protection agencies like the CFPB, the rights of creditors once the statute of limitations has expired has become uncertain. The CFPB takes the position that any actions taken by a creditor to imply that a debt is still legally enforceable after the statute of limitations has run is a violation of federal law. Furthermore, consumer lawyers have argued that actions to collect a debt after the statute has expired is misleading and a misrepresentation in violation of federal and statute law consumer protection statutes. As such, a creditor cannot take action that would lead a debtor to believe that the debt is still enforceable through the court system. This limits what actions can be pursued on a debt where the statute of limitations has expired.

If you have any questions about statute of limitations, please do not hesitate to contact our office for legal advice.

CFPB Update Regarding SCRA

What is the Statute of Limitations on Legal Actions to Collect a Debt?

If you follow the Consumer Financial Protection Bureau (CFPB), you will know that the CFPB has been busy providing additional guidance and creating additional work for financial institutions.

One recent announcement from the CFPB has the potential to change how the industry has handled compliance under the Servicemembers Civil Relief Act (SCRA). On December 7, 2022, the CFPB issued guidance based upon its findings that members of the Reserve and National Guard are paying an extra nine million ($9,000,000) in interest every year because lenders are not complying with the requirements of the SCRA.

As you are aware, the SCRA gives servicemembers on active duty the right to request interest rate reductions on outstanding loans that were incurred prior to active military duty. The interest rate reduction provision of the SCRA allows a person on active duty to receive a reduction of their interest to six (6) percent. The law provides that a person can take advantage of the interest rate reduction by making a written request to the lender and providing the lender a copy of their orders establishing when they became active duty.

Considering the CFPB findings and concerns, the CFPB made the following recommendations: (1) Creditors should apply the SCRA interest rate reduction for all accounts or loans held at the financial institution if the person invokes their rights for a single account or loan; and (2) Creditors should automatically apply SCRA rights. While the first recommendation is not controversial, the second recommendation is controversial. While the CFPB does not make specific recommendations, it is suggesting that lenders take on additional compliance burdens not set forth in the law. How often should a lender scrub loans for borrowers who are active military, can such a scrub of loans be done through an automated process, or would such efforts require manual review? The CFPB does not answer any questions that are likely to be raised by their recommendations.

Furthermore, it does not explain whether its recommendations are required under the law. SVL will continue to monitor this matter and all guidance, regulation, and actions of the CFPB.

Staff Spotlight on Gabriel Perry

Gabriel was born into a military family, in Fairfax, Virginia, but spent most of his time growing up in Jacksonville, Florida, where his dad worked at NASJAX. Gabriel made his way to Tallahassee to attend Florida State University and graduated in December of 2021 from the Honors college with a degree in Criminology and Sociology.

Gabriel joined the SVL team in March of 2022 and is one of the legal assistants in the post-judgment department. Away from the office, Gabriel enjoys spending time with his two dogs, playing video games, and finding new places to hang out to eat and drink with friends. Gabriel is currently in the process of applying for law school, which he says has been hectic. He received his first acceptance email while at work and got to share the exciting moment with co-workers, which was very rewarding he says. Like Gabriel, we are excited to see what his future holds!

A fun fact about Gabriel is that he is an Eagle Scout. He has been to more than six countries (twice to Scotland) where he was a scout and then a leader at the Blair Athol International Scout Jamborette! This is where scouts camp alongside other scouts from around the world and attend a program of activities with many opportunities to form lasting international friendships.

Thank you, Gabriel for being part of our team at Sorenson Van Leuven! We are lucky to have you.

Staff Spotlight on Michelle Sorenson

In January 2022, Jim’s wife, Michelle joined the Sorenson Van Leuven team. She has been a great addition and we enjoy having her as a part of the team. At the office, Michelle sends out demand letters for our Credit Union clients, prepares the requests for Issuance of Fi Fa for Georgia matters, and works toward cancelling these liens if necessary in a case. Michelle records final judgments in various counties, as well as prepares judgment lien certificates to submit to the Division of Corporations.

In Michelle’s spare time, she loves photography and watercolor art. She also enjoys spending time with her family, especially her one-year-old grandson, Tripp! Jim and Michelle celebrated their 30th wedding anniversary on August 1st and in the fall, they traveled to Europe on a Mediterranean cruise. Michelle shared that her favorite parts of the trip were the amazing Italian food, seeing the ceiling of the Sistine Chapel and Raphael’s room in the Vatican, as well as walking through ancient Ephesus. There were moments of the trip that left Michelle speechless at the beauty. She is looking forward to her next adventure with Jim!

Two fun facts you may not know about Michelle is that on Monday mornings, you can find her at the gym boxing, and she received her Master’s Degree in Religion from Liberty University in 2020!

Thank you, Michelle for your hard work, your willingness to always help your team members and your willingness to think outside the box to find ways to make work more efficient! We appreciate you.

Text Message Constitutes a Personal Guaranty

The Eleventh Circuit Court of Appeals recently held that a text message can constitute a personal guaranty on a debt. The Eleventh Circuit is the federal appeals court for Alabama, Georgia, and Florida. On October 13, 2022, it issued its opinion in Brewfab, LLC v. 3 Delta, Inc. 3 Delta hired BrewFab to build a machine for extracting cannabidiol oil. The agreement between the parties was an oral contract whereby BrewFab sent 3 Delta invoices for the work it performed. When those invoices stopped being paid, BrewFab stopped its work. After a telephone call where the parties discussed the outstanding invoices and the status of the agreement, a text message was sent by George Russo to a principal of Brewfab in which Russo stated “I [g]eorge Russo from 3 Delta do promise to pay brew fab in full all outstanding bills as of this date and all agreed upon work done for 3 delta future forward.” The Court found it was a personal guaranty. So when you text loved ones and friends this Christmas, make sure to review your text messages to avoid making any binding promises that can and will be used against you. Happy Holidays!

“Alone, We Can Do So Little; Together, We Can Do So Much”

During the month of October, the SVL team raised $310 that was donated to the American Cancer Society. Those in our office that donated toward the cause were entered into a raffle drawing for either a $25 or $50 gift card. Our giveaway raffle winners were Mandy & Koren! This was such a fun team effort, and it was great to see our employees contribute to such a wonderful cause!

‘Tis the Season!

On Saturday, December 10th, the Sorenson Van Leuven team gathered for our annual holiday party. The get-together took place at Blair and Elizabeth Boyd’s house in Tallahassee. This is an event we look forward to each year! We certainly enjoy spending time with our employees and their significant others during the holiday season.