The Pennsylvania Statute of Limitations on debt is a powerful tool for dealing with unfair collection practices. Unfortunately, debtors too often make costly mistakes in applying the Statute of Limitations. In my Philadelphia area bankruptcy and debt settlement practice, it is not unusual for people to come to me after they have paid debts that should have been barred by the Statute of Limitations. Often, they have been tricked into paying debts that the creditor knows is barred by the Statute. Other times, they have unintentionally taken actions that turned a noncollectable debt into a collectible one. Fortunately, by avoiding three common mistakes, you can make the Statute of Limitations work for you.
1. Failing to check the Statute of Limitations.
The most common mistake people make when dealing with the Statute of Limitations is simply failing to see if it has run out on a debt before they pay the creditor. Of course, if your latest payment was only two months ago, you know immediately that a four year Statute does not apply. However, if it has been years since you were last able to make a payment, it is worth your while to check to see how exactly how long it has been since you last made a payment. If the statutory period has run out (typically, four years in Pennsylvania), the debt is unenforceable.
Quick Note: Never take a collector’s or creditor’s word as to whether the Statute of Limitations has run out on a debt. As I discussed in a previous post, “vulture” collectors will often purchase old noncollectable debts and try to deceive debtors into paying them, even though they are barred by the Statute of Limitations. Pull your bank records, if necessary, but never trust a collector or creditor to tell you the truth on this crucial issue.
2. Ignoring a lawsuit because the Statute of Limitations has run out.
You cannot ignore a lawsuit, just because the Statute has run out on a debt. You must raise “affirmative defenses,” such as the Statute of Limitations, in your answer to the lawsuit. Failing to respond will likely result in a judgment against you. For that reason, it is not at all uncommon for a creditor to sue on a debt that is outside the Statute of Limitations, hoping that the debtor will not respond.
Example: Jan, a resident of Philadelphia, has been unable to make a payment on her ABC Bank credit card for five years. ABC never filed suit against Jan, and the four-year Pennsylvania Statute of Limitations has run out on the debt. Nonetheless, a collector purchases the debt from ABC and sues Jan for the balance. Jan must file an answer to the lawsuit stating that the Statute of Limitations has run out on the debt. If she does not do so, the collector may get a judgment against Jan for the full amount claimed, as well as attorney’s fees and costs.
If you are sued, be sure to have a debt negotiation or bankruptcy attorney review the lawsuit immediately. In most collection cases in Pennsylvania, you have only 20 days in which to file a response.
3. Paying, acknowledging, or promising to pay a debt that is or soon will be beyond the Statute.
Never make a payment on, acknowledge, or promise to pay a debt that is beyond the Statute of Limitations or on which the Statute is about to run out. If you make even a small payment, acknowledge that you owe the money, or promise to pay at some point (including entering into a payment plan), you could start the statutory period over again. If you have not been able to pay for a long time, the last thing you want to do is restart the Statute of Limitations period when it is just about to run out.
Example: Tom owes $5000 on his XYZ credit card. He has been unable to pay for the last three years and 11 months because of a job loss. XYZ never files suit against Tom and the Statute of Limitations is set to run out on January 30th. However, on January 29th, a debt collector calls Tom and demands payment. To keep the debt collector away, Tom agrees to make a payment of $25 towards the debt. Unfortunately, Tom may have just restarted the Statute of Limitations period by making that small payment, giving the creditor another four years. If Tom had not made the payment, he would be free and clear of the debt.
Note that there is an argument that the small payment is not an admission of debt and, therefore, does not restart the Statute. (See my post: The Pennsylvania Statute of Limitations on Debt Stops Vulture Debt Collectors.) However, you should avoid placing yourself in the position of having to make that argument.