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Statute of Limitations: Is There a Time Limit on Debt Collection?

by | Dec 1, 2020 | Bankruptcy Basics

No matter who you are, getting a call from a debt collector can be a daunting experience. Just because you owe a debt, however, does not always mean that you are legally obligated to pay it. 

Under the law, creditors have a window of opportunity to file a lawsuit to collect debts, and if the statute of limitations has passed, that window closes.

After that, debt collectors may still contact you to seek payment but any legal claim to the amount you owe is time-barred. In other words, the statute of limitations does not extinguish the debt. Instead, this statute provides debtors with an affirmative defense, which means that if a creditor files a lawsuit, you can get the lawsuit dismissed by proving it’s too late to collect.

What Is The Statute Of Limitations In New Jersey?

Every state has individual statutes that limit how long a person or entity has to file legal claims. In New Jersey, the statute of limitations ranges from four to six years depending on the type of debt that is owed. 

The six-year limit applies to most debts, including written contracts, medical bills, state taxes, private student loans, and major general purpose credit cards (for example, Visa, Mastercard, or American Express). 

For debts related to the sale of goods or retail purchases, such as auto loans and retail store–issued credit cards, the statute of limitations is four years.  

When Does The Statute Of Limitations Begin?

In New Jersey, the clock begins to run for the statute of limitations from the most recent point of activity on the charges, payment, or credit card. 

This “date of last activity” is usually when the borrower fails to make a scheduled payment on the account. If you have fallen behind on your debt and stopped paying and are within the four- or six-year window set by the statute, your creditor has the right to sue you.

You may be unsure about the date of your last payment, however, and debt collectors may not volunteer this information. If the collector doesn’t tell you that the debt is time-barred but you think it might be, you can ask them to provide you with this date. They may choose not to answer, but if they do provide the date, the Fair Debt Collection Practices Act prohibits them from giving you false information. 

Regardless, there is no guarantee that the date they provide is accurate, and you should not assume the information you receive is correct. For this reason, you should always send a letter within 30 days of receiving notice of the debt to request verification of the date of last activity via a certified letter or recorded phone call. 

Even after you receive the collector’s response, you should still verify the date of last activity through your own records and check your credit reports to make sure the information you were given is correct. 

Can The Statute Of Limitations Be Reset?

It is important to realize that the statute of limitations clock can be reset, and many debt collectors are skilled at doing this. Even if you only make one payment on your past-due account to the collection agency, this payment brings the account to a “current” status and officially resets the statute of limitations time frame. 

Many debt collectors are banking on this fact when they contact you. They know that once you make a payment, the debt collection agency suddenly regains its legal claim against you for the remaining balance due on the account. In fact, you may even reset the clock simply by telling the collector you intend to pay or verbally acknowledging the debt. To avoid this pitfall, you should be aware of the law when speaking with debt collectors and always verify any information they provide. 

If you are contacted by a debt collector, discussing your situation with an attorney first may help you avoid giving the agency more time to file a lawsuit. Whether you choose to make a payment is ultimately up to you. Many individuals choose to repay an old debt as a matter of principle, or some will work out a payment plan with the debt collector to reduce the total amount owed. 

No matter what you choose, you should be aware of the consequences of paying on the account and should not agree to any repayment plan that you can’t handle financially. 

What Should You Do If A Debt Collector Files A Lawsuit To Collect an Old Debt?

If a collection agency has contacted you regarding a debt after the statute of limitations has passed, you should consult an attorney. 

If a collector has already filed a legal claim against you on a time-barred debt, you should not ignore the lawsuit. Never assume the judge will dismiss the case because the claim has expired. By ignoring the claim or choosing not to answer the filing, you are opening yourself up to the possibility that the debt collector wins a default judgment against you. If that happens, the collector may use that judgment to garnish your wages, levy your bank account, or get a lien on your property.

If you are sued, you must respond to the complaint either personally or through an attorney, and you must raise the defense that the claim is barred by the statute of limitations. If you fail to respond and assert this defense in a timely manner, you may lose your right to raise it later. An attorney can assist you in preparing this defense so that your rights are fully protected. 

Contact The Law Office Of Levitt & Slafkes Today

If a creditor contacts you or files a lawsuit against you to collect a time-barred debt, the attorneys at Levitt & Slafkes are here to help. 

Call (973) 323-2953 or fill out our Contact Us Online for a FREE consultation. We can help you protect your rights against debt collectors, and reclaim your financial freedom!

We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.