The four-year Pennsylvania Statute of Limitations on debt is an often overlooked but powerful defense for consumers facing aggressive creditors. Debt collectors do not want you to know this, but sometimes a debt is just too old to collect. All states have “Statutes of Limitation” that prevent a creditor from enforcing a debt, if the creditor does not file suit within a certain period of time. In other words, if a creditor waits too long to sue you, it is simply out of luck. Unfortunately, there are “vulture” debt collectors who will continue to try to collect on debts after the Statute has run out. Therefore, before resorting to bankruptcy or beginning debt negotiations, it is important to know what the Statute of Limitations is and how it can protect you.
The Pennsylvania Statute of Limitations on debt
The Pennsylvania Statute of Limitations on written contracts, oral contracts, promissory notes, and open-end accounts (e.g., credit cards) is 4 years. (42 Pa. C.S. 5525(a)) The creditor has 4 years to file suit from the date of the last activity on the account, which almost always means the last time the debtor made a payment. If the creditor has not filed suit within 4 years of that last payment, the debt is unenforceable. (If the debtor made no payments at all on the account, the Statute runs from the date that the first payment was due.)
Example: Ann owes $2000 on her ABC credit card. She last made a payment on the card on June 10, 2010. If Ann makes no more payments, ABC has until June 9, 2014 (4 years from the last payment) to file suit against Ann. If ABC fails to sue Ann by June 9, 2014, the creditor’s claim is barred by the Statute of Limitations.
Stopping and Starting (Tolling)
Certain events, such as moving out of state or deliberate concealment, may “toll” or suspend the Statute of Limitations, meaning that it stops running during the event and starts running again when the event is over. Bankruptcy also tolls the Statute. Therefore, if you file for bankruptcy under any chapter, but the case is dismissed, the statute is tolled during the time that the bankruptcy was pending. Thus, you must take into account any tolling period when calculating when the statute runs out.
Example: If Ann from the example above moves out of state on January 15, 2011 and returns on January 14, 2012, the Statute would be tolled during the year that she was out of state. Therefore, it would run out on June 9, 2015 rather than June 9, 2014, giving the creditor another year in which it can file suit.
Quick Note: The Statute of Limitations is an “affirmative defense”, meaning that if the creditor sues you, you must raise this defense in your answer to the lawsuit. If you do not respond to the lawsuit and raise your Statute of Limitations defense in your answer, you could end up with a judgment against you, even though the debt is beyond the Statute. In other words, you lose your Statute of Limitations defense by failing to raise it.
You might wonder why a creditor would try to collect on a debt after the Statute of Limitations has run out. However, it can be a lucrative business, particularly if you lack scruples. “Vulture” debt collectors purchase very old accounts on which the Statue of Limitations has run out for a few cents on the dollar. They count on debtors not understanding that these debts are unenforceable. I see this situation more and more in my Philadelphia bankruptcy and debt settlement practice. Many of these debt collectors use extremely aggressive tactics.
When the Statute of Limitations does not apply:
The Statute of Limitations on debt does not apply to judgments. Once a creditor has obtained a judgment against you, there is no Statute of Limitations defense. Judgments are essentially forever in Pennsylvania and act as a lien on real property. However, there is a limitation, albeit not a very useful one. The judgment creditor has twenty years to execute against the debtor’s personal property (e.g., money in bank accounts, furnishings, vehicles, etc.) to collect the judgment. In some circumstances, for example if you were not served properly with the initial lawsuit, you may be able to reopen a judgment and raise the Statute of Limitations and other defenses.
The four-year Statue of Limitations on contracts does not apply to first mortgages. There is no statute in Pennsylvania requiring a mortgage lender to foreclose within a certain time period after a default. Although there is an argument that the 20-year Statute of Limitations on documents under seal should apply to mortgage loans, that issue is not settled. However, after a sheriff’s sale, the mortgage lender has only six months to seek a deficiency judgment.
Quick Note: Unlike a first mortgage, the four-year Statute of Limitations applies to a second mortgage or subsequent mortgage that has a remaining balance after a sheriff’s sale. When a second mortgage is not paid in full from the proceeds of the sheriff’s sale, it becomes an unsecured personal debt (like a credit card or personal loan). The Statute on that debt runs from the date of the last payment made on the second mortgage, not from the date of the sale.
The four-year Statute of Limitations does not apply to taxes, civil fines, criminal fines, federal or federally-backed student loans, or domestic support obligations. For the most-part, the Statute does not apply to government obligations.
Quick Note: Although federal student loan lenders can bypass the Statute, the four-year Statute of Limitations does apply to private student loans (i.e., loans that are not issued by or backed by the government) and most non-student loan tuition debt. Not surprisingly, debt collectors have been know to lie about this fact.
Using the Statute to stop vulture debt collectors
What should you do if a debt collector tries to collect on a debt after the Statute of Limitations has run out? Because they count on debtors not knowing their rights, it is often enough to write to the creditor to demand (1) validation of the debt (essentially proof that the debt exist and that the creditor owns the debt) and (2) proof that the Statute of Limitations has not run out. They will generally move on to another victim. Of course, if you talk to or write to a creditor, do not admit to owing the debt, make a payment, or agree to make a payment. If you do, you may compromise your Statute of Limitations defense.
Quick Note: Creditors and debt collectors will lie to you. Do not trust a debt collector who tells you that the Statute of Limitations does not apply, that another state’s longer Statute applies, or that you made a payment that you do not recall. Check your own records and obtain the assistance of an attorney, if necessary.
What if the debt collectors still will not stop? If the Statute has run, and the collectors persist in trying to collect, you may have a case against them under the federal Fair Debt Collection Practices Act (“FDCPA”) and Pennsylvania’s Fair Credit Extension Uniformity Act. (Note that if a debt has been discharged in Chapter 7 or Chapter 13 bankruptcy, the Statute of Limitations does not apply, and any attempt to collect the discharged debt is a violation of the Bankruptcy Code and, possibly the FDCPA.)
Knowing your rights can help you keep unscrupulous debt collectors at bay, and sometimes make them pay.