• Limitations  and Debt Collection
  • August 24, 2013 | Author: Madhu Kalra
  • Law Firm: Kalra Law Firm Professional Corporation - Torrance Office
  • Debt collection is subject to limitation statute of Code of Civil procedure Section 337.  

    A  limitation statue is a statute (law) that provide for time limitation within which a legal action may be taken with respect to particular cause of action. With respect to debt obligations, the statute of limitation sets forth the specific time frames within which a creditor or debt collector can sue the debtor for repayment of debt after accrual of cause of action.

    In California, the statute of limitation within which a legal action can be filed is  Four years upon default. Four years statute of limitation is applicable for account based upon written contract or liability based upon promissory note except as provided in CCP Section 336a ; that the time within which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, may be brought shall not extend beyond three months after the time of sale under such deed of trust or mortgage.

    The statute of limitation is commenced from the time last date payment was made on the open book account or credit card account.

    In simple words, creditor has four years within which to file a lawsuit to collect debt after default. 

    If creditor commences action after 4 years of accrual of cause of action for debt collection, it can be legally dismissed. But in order to get it dismissed, debtor must take action to defend himself. In alternative, the debtor would need to file a response and assert an affirmative defense of statute of limitation. If debtor or defendant fails to file response and or assert affirmative defense of statute of limitation, said defense is considered waived and creditor can proceed to obtain the judgment for the outstanding debt with court costs. 

    Therefore, its very important that debtor or the obligor takes action upon service of the summons and complaint from the court.

    Similarly, in a bankruptcy, if the creditor files a claim after the passing of the statute, the proof claim can be stricken upon objection to claim by the debtors.

    SecondlyEven if the time within which the time to repay is over, the creditor can continue to report it for seven years after default, on the consumer credit report. Therefore, such reporting affects debtor’s credit score.