What exactly is a statute of limitations (SOL)? Most people involved with creditors rights issues are aware that they exist, but sometimes we perceive issues like this as “black and white” when they are not. As one recent commentator said, there is no “easy button” when it comes to this subject.
Generally, most SOLs are set by state law and vary greatly from one jurisdiction to another. They are laws enacted to set a time limit within which a lawsuit can be brought against another party. In other words, if you have a debtor that has defaulted on their obligation, there is a limited amount of time provided under state law for you to bring any legal action against them.
Things to Keep in Mind
First you should consider when the cause of action “accrued.” That is the date upon which the statute begins to run. Typically the statute does not start running when the loan is extended, but only after a default has occurred. In other words, if a loan is taken out in 2011, but the debtor does not go into default until 2015, the statute of limitations clock starts ‘ticking’ at that time.
The second factor to consider is whether the statute has “tolled.” Sometimes after the statute begins to run, certain events can occur which ‘stop the clock’ for a while. Each state that recognizes tolling uses different factors to determine when these things happen. For example, if the debtor hides or makes a payment the statute may be temporarily tolled.
The third issue has to do with the nature of the statute of limitations. In most states, it only comes up as a defense to an action that is filed by the plaintiff. In other words, the statute does not normally act as an absolute bar to filing suit, but merely a defense once one is in process. This area of the law is rapidly evolving, as some consumer rights advocates are now taking the position that merely filing a suit be on the statute is a violation of the FDCPA.
You must also know which SOL may apply in a given situation. There are several scenarios, such as actions that cross state lines when a person moves.Does the SOL of the state in which the debt originated control, or that in the state where the person now resides?
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As you can see this is not a simple as it might appear at first blush. If you would like to know more about how SOLs relate to your situation, feel free to contact Hiday & Ricke today. You can also download our white paper on statutes of limitation to go deeper into this important topic.