Sunday, August 1, 2010

Debt Collection Lawsuits: The Statute of Limitations Defense

Stop a Debt Collection Lawsuit 

If you know what you're doing, you can successfully halt a debt collection lawsuit in its tracks using the following methods:

The Statute of Limitations Defense

Each state has a statute of limitations for debt collection lawsuits. The time frame varies and can range from around 4 years in most states to 15 years if you happen to be unlucky enough to be living in Rhode Island. Once the statute of limitations expires, your debt is time-barred.

That doesn't mean that debt collectors won't try to sue you. Not responding to a lawsuit nets you a default judgment which is enforceable regardless of whether or not the debt was time-barred at the time the default judgment was levied. In order to fix it, you'd have to return to court and contest the judgment. It's time-consuming and, if you hire an attorney, expensive.

If you receive a summons for a debt collection lawsuit and you know for a fact that the debt the company is trying to sue you for is outside your state's SOL, fire back with a letter informing the collection agency that the debt is time-barred in your state and you would be more than happy to appear in court and inform the judge of that fact. Knowing that it cannot win, the collection agency will usually drop the lawsuit.

Like I've recommended before, its a wise idea, in situations such as these to shell out a few bucks to have an attorney draft your letter. Collection agencies are always more likely to back off and drop a debt collection lawsuit when they know you have access to an attorney.

11 comments:

  1. I live in Washington State - was recently turned down for a car loan. I found a judgement on my credit report that I knew nothing about. Research revealed it was from an old debit of an ex-spouse that he discharged in bankruptcy after our divorce (we were married when he incurred debt and we are community property state. I was never served with the lawsuit summons; the court file shows an address (not person) where I've never lived or received mail, but occupants have same last name. The default judgement was entered over 4 years ago the other party has made no attempt to collect. This debt is well beyond Washington's statute of limitations for debt collection (6 years). Clearly a judgement was entered before the 6 years was up; however I was never served. I have remained at the same address for 11 years. My question: because the other party never had legal service, can the statute of limitations defense work for me? Thanks

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  2. Theoretically yes, you could contest the judgment if a judge permitted it. Normally I would say try to use the lack of service as grounds to file a Motion to Dismiss but Washington state has a horrible little loophole for collectors: it allows them to serve you via publication. So even if they sent service to the wrong address, they still provided proper service under the law if they published a notice of the pending lawsuit in the paper.

    I'm not expert at Washington civil law, but any attorney with half a brain should be able to poke holes in that – especially if the publication was performed in a different county than the one you live in.

    Here's the good news. There is no time frame for contesting a judgment in Washington, and the rules regarding what constitutes just cause for contesting the judgment are deliciously vague. So to answer your question, yes, I believe you could file a Motion to Dismiss (or at the very least get a new hearing) based on the fact that the statute of limitations on the debt had expired before the original judgment was granted. My recommendation? Find an attorney and get cracking.

    Oh, and after you get rid of the judgment, you might as well sue the pants off the collection agency. After all, they caused this mess. Shouldn't they be the ones to pay your legal fees? Best of luck to you.

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  3. The government took over my loans from Sallie Mae. The loans are from 1986 to 1994, and total around $48,000. The last contact I had with them I informed them I was applying for disability (I have MS and AS). They said that when my disability came through my loan would go away. I called to check this week, they informed me that my loan had gone to 'collections'. I thought I was already dealing with collections. Now I'm afraid they are going to take my husband's tax refund. We can barely keep a roof over our head. Is there any hope?

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    1. I have posted both of your comments. I didn't read this one until I'd already read and answered the one that appears below. You don't mention which state you're in, but there are only nine community property states in which the IRS could seize your husbands tax refund, wages and bank accounts. If you live in a non-community property state and you and your husband file a joint return, the IRS will only seize half of the return. The other half belongs to your husband and isn't subject to seizure.

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  4. I have student loans dating from 1986 to 1994. They were purchased by the government. The last contact I had with them, I informed them I was applying for disability, I have MS and AS. The person on the phone told me when I received disability, my loan would go away. Last week when I called to check on the status, I was informed that my loan had gone to collections. Now I am terrified that they will take our tax refund, which we rely on to pay bills. We live from paycheck to paycheck, with three children to care for. My medical bills alone are prohibitive. Is there anything I can do?

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  5. I'm a bit confused by the part where you explain that the person on the phone said the loan would "go away"? Was this person working with the student loan guarantor or with the disability office?

    Student loans don't just "go away." You have a very valid cause for concern. If your loan is in default, not only will they take your tax refund, they can drain your bank accounts. If your spouse works and you live in a community property state, they can garnish her paychecks. They can also seize a portion of your disability checks each month.

    The good news here is that you can prevent it from ever reaching that point. If your loan is in collections, its clearly in default. You might be surprised at how helpful the Department of Education can be with borrowers who need to bring their accounts current. Provided you make timely payments for 9 months in a loan rehab program, the DoE may restructure your debt to lower your payments and make them less of a financial hassle each month. Also, should you need to file bankruptcy, you *might* be able to discharge this loan. You hear everywhere that you can't discharge student loans in bankruptcy, but if you can prove that the payments causes you undue financial hardship, the judge may release you of your obligation to the loan.

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  6. My husband had student loans that he defaulted on. Last year, they took our entire federal return... but we live in NYS and from what I can find, half of that belonged to me. Is there any way to get that returned at this point?

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    1. Provided you paid taxes and filed a joint return then yes, half of that refund is legally yours and yes, you can get it back. You'll need to file Form 8379 with the IRS. Here's the web address to copy and paste into your browser (I don't have comments set up for links due to spam issues, sorry)

      http://www.irs.gov/pub/irs-pdf/f8379.pdf

      For more information on injured spouse relief and your specific situation, visit:

      http://www.irs.gov/uac/Seven-Facts-about-Injured-Spouse-Relief

      Now...go get your money!

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  7. My mom got in a wreck and was found at fault we live in washigton state and she has a colection place calling and saying there going to freeze her account and take her to court and put a hold on drivers licence she gets disability and needs her licence to get to the doctors and places for her and my great grandma please help were not sure what we need to do

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    1. They can't freeze her account if all she gets is disability. Disability payments are exempt from garnishment and levy. She needs to tell them that and let them know that if they attempt to seize her disability, she'll sue them. She can help avert this by letting her bank know that a creditor may attempt to levy her bank accounts and verifying with the bank that her accounts contain only disability payments which are exempt. They can put a note on her account to this effect that will serve as some measure of protection when and if the creditor attempts to levy them.

      As far as the driver's license thing goes, I know you can lose your license for failing to pay citations. Is this debt for an unpaid ticket associated with the accident? A lawsuit? What does she even owe money for? All I can tell you for certain is that her disability payments are protected.

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  8. IF heading to court, make sure the creditor produces the original contract. If not many states will throw out the lawsuit if you use this as a defense (check your state's code of civil procedures)but you have to answer the summons. IF they do produce a contract look for fine print where they state the laws of that company's home state will be used. If that state has a shorter statute of limitations than your own state, use that to your advantage.
    Statute of Limitations for all 50 states:
    http://www.creditcards.com/credit-card-news/credit-card-state-statute-limitations-1282.php

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