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.