With the economy gaining momentum, the financial meltdown of ’08 seems like a fading memory. Unfortunately, for anyone unable to keep up on all their bills during the lean years, it only takes a letter from a collection company to bring it all flooding back. And there is nothing like a collection lawsuit to force you to relive those stressful days and sleepless nights.
Old debts long forgotten have a way of turning up at the most inopportune times. But how old is too old? This post will discuss the time limits creditors or collectors have to bring legal collection actions, including factors that may pause or restart those limits, and what you can do if you’re being sued on a time-barred debt.
What is a statute of limitations?
The statute of limitations is the amount of time a party has to file a lawsuit on a particular claim. If the time to bring a collection lawsuit has expired, the statute of limitations has “run” and the collector can no longer sue the debtor to collect.
How long is the statute of limitations on debt collection lawsuits in Utah?
The amount of time a collector has to sue a debtor varies depending on the underlying obligation. If the debt is based on a written agreement or contract, the statute of limitations is 6 years.1 If the agreement is not based on a written document, or is an open store account, the statute of limitations is 4 years.2
While it’s usually pretty easy to determine if a debt is based on a written contract, there is a common question whether a credit card account is based on a writing since often times the applicant never receives or signs a written contract. Utah courts have not definitively ruled on this issue, but it is my opinion and experience that courts typically consider credit card accounts subject to the 6 year statute. I’ll explain why in my next post.
When does the statute of limitations begin?
Whether the contract is based on a writing or otherwise, the clock begins to run when the contract is breached.3 For the majority of credit agreements the date of the breach is either when the last payment was received or the date of the last charge, whichever is later.4 So if the last time you used your credit card was July 12, 2008, the statute of limitations would run July 12, 2014 unless something else caused the statute of limitations to restart or be put on pause. However, a breach may occur based on certain conditions within the contract. For example, an auto loan typically requires the purchaser to maintain insurance on the vehicle and a breach occurs the day the insurance lapses. Carefully review your contract for other conditions that may trigger a breach.
How do I know which state’s statute of limitations applies?
9 times out of 10 Utah’s statutes of limitation will apply. A lot of credit agreements contain choice of law provisions which name a particular state law to govern any dispute arising from the contract, but in only very rare cases do Utah courts allow the choice of law provision to control the statute of limitations. It is difficult to explain why without getting too deep into the legal weeds, but I’ll do my best to keep it simple. Basically, when courts have to determine which state’s law applies they first decide whether the law in question is substantive (laws that govern the actions, punishments and relationships between parties) or procedural (laws that govern the way a dispute is adjudicated).5 Courts will always apply the procedural law of the state where the lawsuit has been filed, and Utah courts have consistently held that statutes of limitations are procedural.6
What about Utah’s Borrowing Statute?
While courts will apply the Utah statute of limitation in most cases, they may apply another state’s statute of limitations based on Utah’s “borrowing statute,” U.C.A. § 78B-2-103. According to the borrowing statute any “cause of action which arises in another jurisdiction” and is barred by that state’s statute of limitations is also barred in Utah.7 As previously discussed, in breach of contract actions the cause of action “arises” when and where the default occurred. Depending on the terms of the agreement, this determination can be more difficult that you might think. For example, if you get a car loan through a Utah credit union and you stop sending payment checks to their Ogden office, the breach, and therefore the cause of action, obviously arose in Utah. But if you have a credit card with a Delaware company and you send your monthly payments to Michigan, there is a strong argument that when you stopped making payments the breach occurred in Michigan. This very issue is currently pending before the Utah Supreme Court, so we’ll have to wait for a definitive answer.
What can stop the statute of limitations from running?
Several things can “toll,” or pause, the statute of limitations. A common example in debt cases involves bankruptcy. Once a bankruptcy petition is filed, an automatic stay is placed on all the petitioner’s accounts, preventing creditors from bringing collection lawsuits. As long as the stay is in place, the statute of limitations does not run. Of course, if the bankruptcy is successful, the issue is moot because the debt should be discharged.
The limitations period may also be tolled if the debtor moves out of the state for some period before or after the breach of contract.8 However, the clock will continue to run if the same debtor continues to conduct business, supplies goods or services, or owns real estate in Utah.9 The statute of limitations will also pause if the debtor is on active duty in our armed forces.
Finally, if the statute of limitations expires while a collection lawsuit is pending, and the case is later dismissed without prejudice, the debt collector has a year to bring another lawsuit on the same debt.10
Is there anything that will restart the clock?
Certain actions by a debtor will almost certainly “revive” the limitations period and allow the collector another 4/6 years to bring a lawsuit. First is the partial payment on the debt by the debtor.11 To be sufficient to revive the statute of limitations, the payment must be made by the debtor themselves, not another individual on their behalf. It also must be made on the debt in question, so if a debtor has two accounts with the same creditor, payment on one account does not revive the limitations period on both.
The second way to restart the clock is by written acknowledgment of the debt or a promise to pay made by the debtor.12 Again, any promise or acknowledgment must come from the debtor, not another person.
Knowing that these actions will revive the entire limitations period, debt collectors will do anything they can to get debtors to make even a token payment on an old debt. To make matters worse, while they are obligated to answer truthfully when asked about the legal status of a debt, they are not required to inform debtors that the statute of limitations has expired on a debt.
What should I do if I’m being sued on a debt that is beyond the statute of limitations?
If you receive a summons and complaint on a debt you believe is barred by the statute of limitations, make sure you raise that defense in your answer. Even if you aren’t sure, include it in your affirmative defenses anyway just in case. A lawsuit to collect a time-barred debt is a violation of the Fair Debt Collection Practices Act and may allow you to collect actual or statutory damages and attorney fees, so it is worth calling an attorney who specializes in debt collection defense. They can usually tell you over the phone if you have a good case.
The old saying “time can heal all wounds” applies to old unpaid debts. A basic understanding of the time limitations on collection actions is a valuable tool in determining which of your outstanding obligations should have priority. It will also protect you from deceptive and illegal practices employed by debt collectors. If you are being pursued on an old debt, don’t pay a penny until you have determined whether the time limit on a lawsuit has expired. If you have any questions, contact a qualified attorney.
References:
- U.C.A. §78B-2-309
- U.C.A. §78B-2-307
- Clarke v. Living Scriptures, Inc., 114 P.3d 602, 2005 UT App 225 (Utah App. 2005).
- See U.C.A. §78B-2-307, see also State v. Huntington-Cleveland Irrigation Co., 52 P.3d 1257, 2002 UT 75 (Utah 2002).
- See Morris v. Sykes, 624 P.2d 681, 684 n.3 (Utah 1981).
- See Lee v. Gaufin, 867 P.2d 572, 575 (Utah 1993).
- U.C.A. § 78B-2-103
- U.C.A. § 78B -2-104
- See U.C.A. §78B-3-205.
- See U.C.A. §78B-2-111.
- U.C.A. §78B-2-113(1)(c).
- U.C.A. §78B-2-113(1)(b).