For instance, if you’re behind on credit card payments or owe a doctor’s bill, those creditors can’t garnish your wages unless they sue you and get a judgment. Some creditors, however, like those you owe taxes, federal student loans, child support, or alimony, don’t have to file a suit to get a wage garnishment.
The creditor will continue to garnish your wages until the debt is paid off. But creditors can't seize all of the money in your paycheck. Different rules and legal limits determine how much of your pay can be garnished.
Also, you can take measures to stop a garnishment, such as claiming an exemption with the court. Your state’s exemption laws determine the amount of income you’ll be able to retain. Depending on your situation, you might be able to partially or fully keep your money. You can also potentially stop most garnishments by filing for bankruptcy.
Generally, any of your creditors might be able to garnish your wages. Again, some creditors must first get a judgment and court order before garnishing wages. Other creditors don't need a court order.
The most common types of debt that may be garnished from your wages include:
Federal law places limits on how much judgment creditors can take. The garnishment amount is limited to 25% of your disposable earnings for that week (what's left after mandatory deductions) or the amount by which your disposable earnings for that week exceed 30 times the federal minimum hourly wage, whichever is less.
Some states set a lower percentage limit for how much of your wages are subject to garnishment. California law also takes into account the state minimum wage and a different multiplier, which can result in less money being garnished.
Under California law, as of September 1, 2023, the most that can be garnished from your wages is the lesser of:
A bigger exemption is available if the debtor can show need. Under California law, “the portion of the judgment debtor’s earnings which the judgment debtor proves is necessary for the support of the judgment debtor or the judgment debtor’s family supported in whole or in part by the judgment debtor is exempt from levy under this chapter.” (Cal. Civ. Proc. Code § 706.051).
“Disposable earnings” are the monies paid to the employee after the employer takes out the deductions required by law.
In addition to wage garnishment, another way to garnish money is by levying a bank account, subject to some exemptions. Certain money in your bank account is protected from this type of garnishment, for example, two months' worth of certain federal benefits, such as Social Security.
If your federal benefits are directly deposited to a bank account or loaded onto a prepaid card, these benefits are automatically protected from garnishment. But if you get your benefits by check and deposit them, the bank won't automatically protect this money. You'll have to go to court to prove the money comes from protected benefits.
So, credit card companies, medical services providers, and other commercial creditors generally can't garnish Social Security and other federal benefits. However, the federal government can garnish some kinds of federal benefits, like Social Security and Social Security Disability Insurance (SSDI), to recover some debts, such as back taxes or defaulted student loan payments.
If you owe child support, federal student loans, or taxes, the government or creditor can garnish your wages without getting a court judgment for that purpose. The amount that can be garnished is different than it is for judgment creditors, too.
Since 1988, all court orders for child support include an automatic income withholding order. The other parent can also get a wage garnishment order from the court if you get behind in child support payments.
Federal law limits this type of wage garnishment. Up to 50% of your disposable earnings may be garnished to pay child support if you’re currently supporting a spouse or a child who isn't the subject of the order. If you aren't supporting a spouse or child, up to 60% of your earnings may be taken. An additional 5% may be taken if you're more than 12 weeks in arrears. (15 U.S.C. § 1673).
If you’re in default on a federal student loan, the U.S. Department of Education or any entity collecting for this agency can garnish up to 15% of your pay. (20 U.S.C. § 1095a(a)(1)). This kind of garnishment is called an “administrative garnishment.”
But you can keep an amount that’s equivalent to 30 times the current federal minimum wage per week. (Federal law protects the level of income equal to 30 times the minimum wage per week from garnishment.) (15 U.S.C. § 1673).
The federal government can garnish your wages (called a "levy") if you owe back taxes, even without a court judgment. The weekly exempt amount is based on the total of the taxpayer's standard deduction and the aggregate amount of the deductions for personal exemptions allowed the taxpayer in the taxable year in which such levy occurs. Then, this total is divided by 52. If you don’t verify the standard deduction and how many dependents you would be entitled to claim on your tax return, the IRS bases the amount exempt from levy on the standard deduction for a married person filing separately, with only one personal exemption. (26 U.S.C. § 6334(d)).
States and local governments might also be able to garnish your wages to collect unpaid state and local taxes. If you owe California state taxes, up to 25% of your net wages may be garnished by the state to satisfy your tax obligations. Contact your state’s labor department to find out more. You’ll find a link to California’s state labor department below.
If you receive a notice of a wage garnishment order, you might be able to protect (exempt) some or all of your wages by filing an exemption claim with the court or raising an objection. The procedures you need to follow to object to a wage garnishment depend on the type of debt that the creditor is trying to collect, as well as the laws of your state. But usually, you must act quickly. File the required form as soon as possible. You might have to go to a hearing, but if you win, a judge might eliminate or reduce the garnishment.
You can often stop garnishments by filing for bankruptcy. Your state's exemption laws determine the amount of income you'll be able to keep.
Talk to a lawyer to learn more about how you can protect your wages.
Complying with wage garnishment orders can be a hassle for your employer; some might prefer to terminate your employment rather than comply. State and federal law provide some protection for you in this situation.
According to federal law, your employer can’t discharge you if you have one wage garnishment. (15 U.S.C. § 1674). But federal law won’t protect you if you have more than one wage garnishment order. Some states offer more protection for debtors. Check with a local attorney to find out more about state protections.
Learn about wage garnishments for credit card debt.
Find out if a mortgage company can garnish your wages after foreclosure.
Get information about when a creditor will stop garnishing wages.
This article provides an overview of California’s wage garnishment laws. You can find more information on garnishment in general at the U.S. Department of Labor website. To get more information about wage garnishments in California, check out the California Labor & Workforce Development Agency website and the State of California Department of Industrial Relations website.
For information specific to your situation, or to get help objecting to a garnishment, contact a local debt relief attorney.
]]>If you're a California resident and a collector violates the FDCPA or Rosenthal Act, you could file a complaint with various governmental entities, file a lawsuit against the collector in court, or use violations of the law as leverage in settling your debt.
Among other things, this federal law:
The FDCPA applies to agencies collecting debts for someone else (debt collectors) and sometimes to debt buyers.
So, the FDCPA wouldn’t apply to a credit card company when it collects on an overdue account. But it would apply if the credit card company hired a collection agency to collect on its behalf.
The federal FDCPA applies to debt collectors and sometimes debt buyers but not original creditors. California’s Rosenthal Act applies to original creditors and others (see below). (Cal. Civ. Code § 1788.2(c)).
The Rosenthal Act also requires that original creditors comply with most parts of the federal FDCPA. (Cal. Civ. Code § 1788.17). So, in California, original creditors must comply with the Rosenthal Act and the FDCPA. If, for instance, a credit card company contacts you about an overdue bill, it must follow both the FDCPA and the Rosenthal Act.
The Rosenthal Act contains two significant exceptions for when a creditor doesn’t have to comply with the FDCPA: creditors don’t have to provide consumers with a “mini-Miranda” notice or send consumers a debt validation notice.
The federal FDCPA says that the collector must disclose in the initial communication that they're attempting to collect a debt and that any information obtained will be used for that purpose. These disclosures are often called the "mini-Miranda." The disclosures must also be included in subsequent communications. (15 U.S.C. § 1692e(11)).
Under a Consumer Financial Protection Bureau rule, effective in late 2021, debt collectors must make the mini-Miranda disclosures in the same language or languages used for the rest of the communication in which the disclosures are conveyed. Collectors don’t, however, have to identify which consumers can’t communicate in English, nor provide translations in multiple languages. (12 C.F.R. § 1006.18(e)(4)).
Under the Rosenthal Act, the term “debt collector” includes:
Attorneys are subject to the professional standards in California’s Business & Professions Code. This law requires lawyers and their staff to comply with the standards of the Rosenthal Act and some of the provisions of the federal FDCPA. (Cal. Bus. & Prof. Code § 6077.5(a)).
The Rosenthal Act doesn’t apply to every person trying to collect a debt in California or all kinds of debt.
The Rosenthal Act applies when people and companies ordinarily and regularly collect consumer debts. For example, say you’re contacting an acquaintance who owes you money, but you don't regularly collect money. You don’t have to comply with the Rosenthal Act. (Cal. Civ. Code § 1788.2).
The Rosenthal Act applies to debt collectors attempting to collect on debts that people incur by borrowing money, buying property, or obtaining services for personal, family, or household needs. (Cal. Civ. Code § 1788.2).
So, it probably doesn’t protect you from those collecting debts you incurred while operating your business. Likewise, you don’t need to comply if you’re collecting debts owed to you by other businesses.
If you’re behind on your mortgage payments and facing a foreclosure, the Rosenthal Act most likely applies. In the case of Davidson v. Seterus, Inc., 21 Cal.App.5th 283 (2018), the California Court of Appeal, Fourth District, decided that a servicer attempting to collect a mortgage debt is subject to this law.
In another case, the California Court of Appeal held that the Rosenthal Act can apply to a nonjudicial foreclosure. The Fourth Appellate District noted that, as of January 1, 2020, the Rosenthal Act was amended to state that: “[t]he term ‘consumer debt’ includes a mortgage debt.” (Civ. Code, § 1788.2 (f)). (See Best v. Ocwen Loan Servicing, LLC, 2021 WL 2024716 (Cal Court of Appeal, May 21, 2021)).
The Rosenthal Act contains a lengthy list of regulations prohibiting certain debt collection activities, including the following.
Under California law, a debt collector can’t make any of the following threats.
Debt collectors are limited in what they may say, as well as the methods they may use, to contact you—especially on the telephone.
Collectors also can’t do any of the following.
The Rosenthal Act contains several regulations requiring debt collectors to protect your privacy.
If your lawyer agreed to talk to creditors on your behalf and sent written notice to them, then debt collectors can’t contact you. But if the lawyer fails to answer the collector’s correspondence, return telephone calls, or discuss the obligation, the collector may contact you. (Cal. Civ. Code § 1788.14).
The Rosenthal Act also describes specific actions collectors must take, such as the following.
The Rosenthal Act requires a debt collector to inform you if the statute of limitations for a particular debt has passed. The collector has to include the notice in the first written communication it sends you after the statute of limitations expires. (Cal. Civ. Code § 1788.14).
The law also bans collectors from filing a lawsuit or initiating arbitration or any other legal proceeding to collect a time-barred debt. (Cal. Civ. Proc. Code § 337).
Since 2014, debt buyers who try to collect from California residents have had to provide one of the following two notices when the statute of limitations for filing a suit to collect a debt has passed:
The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, [insert name of debt collector] may [continue to] report it to the credit reporting agencies as unpaid for as long as the law permits this reporting.
The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency. (Civ. Code § 1788.52(d)(2)).
As of January 1, 2019, debt collectors must also send this notice if a debt is time-barred. As noted earlier, the collector has to include the notice in the first written communication sent to the consumer after the statute of limitations passes. (Cal. Civ. Code § 1788.14).
The law also bans collectors from actually filing a lawsuit or initiating arbitration or any other legal proceeding to collect a time-barred debt.
While everyone should respect judicial proceedings, California law imposes some specific additional requirements for debt collectors.
When you fall behind on a bill, you should know your rights. The collector must comply with federal and state debt collection laws. You also have the right to respond to a lawsuit the collector files and hire a lawyer to represent you (see below).
If you think a debt collector is harassing you in violation of California law, you can submit a complaint to the California Attorney General, the Federal Trade Commission, and the Consumer Financial Protection Bureau.
If you believe a debt collector violated the Rosenthal Act, you may file a complaint with the California Attorney General’s office. Although the Attorney General won't sue on your behalf, it uses complaints to learn about misconduct.
The Attorney General’s office also provides helpful information about debt collectors for the public.
You may also file a complaint with the Federal Trade Commission (FTC). Under federal law, the FTC is generally responsible for enforcing the FDCPA. (15 U.S.C. § 1692l).
You may also register a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB will forward your complaint to the collector and work to get you a response.
In addition to filing complaints against a collector, you can also file a suit against the collector. If you win, you can recover any actual damages you incurred because of the violation. Also, under California law, if the debt collector acted “willfully and knowingly,” a court can award you an additional $100 to $1,000. And you can get an award of attorneys’ fees. (Cal. Civ. Code § 1788.30).
Your claim is subject to a one-year statute of limitations. (Cal. Civ. Code § 1788.30). Also, sometimes, a court will reduce the amount it awards you by the amount you owe to the creditor.
In most cases, you’ll need a lawyer’s help to file and win a lawsuit; but if you're confident in your knowledge of the law and legal procedures, you may file a suit in small claims court on your own. Also, be aware that a debt collector isn’t liable for a violation of the law if, within 15 days after discovering a violation that can be cured or after receiving a written notice about the violation, the debt collector notifies you of the violation and corrects it. (Cal. Civ. Code § 1788.30). Though, if you have actual damages, it’s unlikely that the debt collector can correct the violation.
Generally, a debt collector must comply with both the federal FDCPA and the Rosenthal Act in California. If a bill collector violates the FDCPA, you might be able to sue and recover damages, including statutory damages of $1,000. (15 U.S.C. § 1692k).
The Rosenthal Act states that its remedies are intended to be cumulative and in addition to any other procedures, rights, or remedies under any other provision of law. (Cal. Civ. Code § 1788.32). So, conduct in California that also violates the federal statute might result in remedies under both federal and state law. (Cal. Civ. Code § 1788.17).
Again, under the Rosenthal Act, if the debt collector acted “willfully and knowingly,” a court can award you $100 to $1,000 plus attorneys’ fees. (Cal. Civ. Code § 1788.30). However, the debt collector can avoid any liability if it's possible to cure the violation. Remember, the debt collector has to do so within 15 days of discovering that the breach can be cured. If you have actual damages, such as emotional damages, however, it’s unlikely that the debt collector can cure the breach.
For example, you have the right to file a response (answer) to the suit. You can raise any violations of debt collection laws in your answer and use them to negotiate a settlement of your debt.
If you’re trying to settle a debt and the collector violates the Rosenthal Act, you can use the violation as leverage in your negotiations. Collectors know that a lawsuit can be costly to defend and might result in a judgment against them.
Just how much leverage you’ll get from the threat of a lawsuit depends on the strength of your case. If you have strong facts proving a violation—such as many instances of harassing phone calls or the testimony of coworkers who received threatening phone calls—you’ll have much more leverage in your debt settlement negotiations.
Be aware that if a debt is canceled, forgiven, or discharged for less than you owe, the amount of the canceled debt might be taxable. The IRS generally considers canceled debt of $600 or more as taxable, and settling debts for less than what’s owed can increase your tax liability depending on your tax bracket and the canceled amount. Consult a tax professional for more information.
The California Fair Debt Settlement Practices Act (Cal. Civ. Code § 1788.300, and following), effective January 1, 2022, provides protections to consumers who hire someone to provide debt settlement services by:
This article provides details on collection laws in California, with citations to statutes, so that you can learn more. Statutes change, so checking them is always a good idea. To learn how to find state statutes, visit Nolo’s Laws and Legal Research Center.
How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consider consulting an attorney. So, if you think a debt collector or creditor violated the law when trying to collect a debt from you, consider talking to an attorney who can analyze your situation and advise you about your rights and options under the law.
An attorney might also be able to help you to negotiate a debt settlement.
]]>But all too often, for-profit companies that provide this kind of “help” settling debts are scammers who offer little or no assistance once you've agreed to pay them. You might even end up in a worse position than before you hired the company.
So, California passed a new debt settlement law to protect consumers from shady debt settlement companies.
A debt settlement company acts as an intermediary between a debtor and one or more unsecured creditors, like credit card companies. These companies offer so-called “debt negotiation,” “debt reduction,” or “debt relief” services with the goal of obtaining a settlement in which the debtor pays less than the total amount of the debt.
Some companies claim they can reduce your debts by half or more. To get this kind of reduction, the company will tell you to make payments to it rather than your creditors. (Or the company might have you open a savings account in your name and deposit a monthly amount there rather than paying your creditors.) Once enough money is available, based on the debt settlement company’s opinion, the company negotiates lump-sum settlements with your creditors. The company or an affiliated payment processor pays the creditors—and often themselves—with money from the account.
Generally, you have to pay the debt settlement company a percentage, around 15% to 25%, of the amount you save through settlement (or your total enrolled debt) as compensation. You might also have to pay a monthly fee and other fees, like a set-up fee.
It can take two to four years to complete the debt settlement process. During this time, your credit reports will show more and more late payments and probably charge-offs and accounts sent to collection agencies. Because you haven’t reached an agreement with your creditors to stop making payments, they might sue you or take other steps to collect from you.
Also, late penalties and interest will continue to accrue, increasing your debts. Taking these additional charges into account, along with the fees you’ll have to pay to a debt settlement company, you could end up worse off financially than before you start the settlement process—even if the company manages to settle some of your debts.
If, after considering all of these downsides, you’re still considering using a debt settlement company’s services, the California Fair Debt Settlement Practices Act can protect you.
Governor Gavin Newsom signed the California Fair Debt Settlement Practices Act (AB 1405) (Cal. Civ. Code § 1788.300 and following) into law on October 4, 2021. Effective January 1, 2022, this law sets certain requirements and prohibitions for debt settlement companies and related payment processing services, such as:
Still, even with all these protections under California law, in almost all cases, you'd be better off working directly with your creditors or getting help from a reputable lawyer rather than hiring a debt settlement company.
California’s Fair Debt Settlement Practices Act prohibits debt settlement providers and payment processors from engaging in unfair, abusive, or deceptive acts or practices when providing debt settlement services or payment processing activities. (Cal. Civ. Code § 1788.302).
For instance, a debt settlement provider or payment processor can’t offer to lend you money or extend credit to you, or purchase a debt you’ve enrolled in a debt settlement program. (Cal. Civ. Code § 1788.302).
Under the law, a debt settlement provider can’t engage in false, deceptive, or misleading acts or practices. So, it can’t make false, deceptive, or misleading statements about its services or omit information when trying to sell its services to you or when providing settlement services. (Cal. Civ. Code § 1788.302).
The law also prohibits the company from directly posting, or indirectly causing to be posted, an online review or ranking on an internet website if the debt settlement provider provides anything of value in exchange for a good review or rank. (Cal. Civ. Code § 1788.302).
California's new debt settlement law requires debt settlement companies to give the following disclosures no less than three calendar days before you sign a contract with them.
The debt settlement provider must also disclose:
In addition, the debt settlement company must give you a copy of the proposed written contract no less than three calendar days before you sign the contract. (Cal. Civ. Code § 1788.302).
The company also has to provide you with a copy of the signed contract immediately after receiving it. (Cal. Civ. Code § 1788.302).
California's Fair Debt Settlement Practices Act requires each contract between a consumer and a debt settlement provider to include:
Also, the contract can’t require a compulsory agreement with any other party. A debt settlement provider may require that you get a dedicated settlement account and provide a list of preferred vendors. But a payment processor that receives compensation from you for its services must supply its own contract to you. (Cal. Civ. Code § 1788.302).
A debt settlement company can’t collect a fee until they’ve reached a settlement agreement, you’ve agreed to the settlement, and you’ve made at least one payment to the creditor as a result of the agreement. (Cal. Civ. Code § 1788.302).
The California Fair Debt Settlement Practices Act requires debt settlement providers to provide monthly accounting statements, including the fees collected from a settlement account, among other things. Debt settlement companies also have to provide an accounting statement on or before the fifth business day after a consumer requests one. (Cal. Civ. Code § 1788.302).
Payment processors, too, must provide monthly statements, including the amounts deposited in and withdrawn from a settlement account and other information. It must also provide an accounting statement on or before the fifth business day after a consumer requests one. (Cal. Civ. Code § 1788.302).
The debt settlement provider can’t communicate with any of your creditors until five calendar days after you sign a contract for debt settlement services. (Cal. Civ. Code § 1788.302). You can cancel the contract during this time, before the company even starts dealing with your creditors.
Also, you may terminate a contract for debt settlement services at any time without a fee or penalty of any sort by notifying the debt settlement provider in writing, electronically, or orally. The termination is effective immediately when you give the notice either electronically or orally. If you give a cancellation notice by mail, the contract terminates upon receipt if the notice is sent via certified mail. The notice is effective seven calendar days from the date of mailing if you send the notice by noncertified mail. (Cal. Civ. Code § 1788.302).
Once the notice is effective, the debt settlement company must immediately cancel the contract and notify the payment processor. After getting a notice of cancellation from you or a debt settlement provider, the payment processor must stop accumulating service fees, close the settlement account, and deliver the balance of the settlement account to you within seven days. (Cal. Civ. Code § 1788.302).
The law also requires the debt settlement company to immediately forward to you any notice of a lawsuit or settlement agreement that the company negotiated. (Cal. Civ. Code § 1788.302).
Under California's new debt settlement law, you can bring a civil action if a debt settlement company or payment processor violates the law. If you win the suit, you can get statutory damages of no less than $1,000, but not more than $5,000, actual damages, injunctive relief, and other relief as the court deems proper, including costs and reasonable attorneys’ fees. However, if you file a lawsuit in bad faith, you’ll have to pay the company’s attorneys’ fees. (Cal. Civ. Code § 1788.305).
The statute of limitations for bringing a suit is four years after the latter of the following dates:
The debt settlement company or payment processor can’t ask you to waive your right under this law. (Cal. Civ. Code § 1788.306).
Even if a debt settlement provider manages to reduce some of your debts, you'll have to pay a lot for services you could do yourself or would be better off paying to a lawyer.
You can negotiate with your creditors yourself (for free). If you're sure you want to settle your debts rather than filing bankruptcy or pursuing another option—and your creditors aren't already suing you—you might not need a lawyer. You might be able to negotiate better settlements than a debt settlement company or maybe even a lawyer could.
But if you need help with the negotiations, are being sued, or want to learn about other options, like filing for bankruptcy, it’s best to consult with an attorney.
If you decide to hire a lawyer to help you in the debt settlement process, you need to make sure you're hiring a legitimate law firm and not a debt settlement company fronting as one. And be sure to avoid firms that share fees with a debt settlement provider. These arrangements give the company an appearance of legitimacy, but the lawyers have little or nothing to do with you, your creditors, or the debt settlement process.
Attorneys that operate debt settlement companies or share fees with one must comply with California’s debt settlement law. To be exempt from the California Fair Debt Settlement Practices Act, lawyers and law firms can’t charge for services regulated by this law or, directly or indirectly, share fees and disbursements with a debt settlement provider. To be exempt from the law, lawyers and law firms also must:
Talk to a bankruptcy lawyer if you want to learn more about different alternatives for dealing with your debts, like filing for bankruptcy. To find out more about settling your debts or how to deal with a collections lawsuit, speak to a reputable debt settlement attorney. Many bankruptcy and debt relief attorneys offer free consultations and will quote you a fee after evaluating your circumstances.
]]>However, you or the creditor might do certain things that could reset or extend the statute of limitations. To avoid giving the credit card company more time to sue you, it’s important to understand how California's statute of limitations works for credit card debt.
Your credit card company or debt collector must sue you in court within a certain amount of time, called the "statute of limitations." Or it loses its right to force you to pay your debt.
Each state makes its own laws regarding how many years your creditor has to file a lawsuit against you.
In most cases, when you get a credit card or sign any other type of credit agreement, you enter into a contract with the creditor and agree to make a monthly payment, including interest, until you repay the borrowed amount. The two types of contracts in California are written and oral contracts—and the statute of limitations differs for each of them.
Virtually all credit card agreements are written contracts. So, you and the credit card company put the terms of the agreement in writing. Often, you agree to the contract terms listed on the credit card application when you sign it.
In California, the statute of limitations for a written contract is four years.
It’s unlikely that your credit card agreement is an oral contract, meaning that you entered into a verbal agreement with the credit card company and didn’t write down the terms. But if it is an oral contract, the statute of limitations for an oral contract is two years.
The statute of limitations clock starts ticking when a cause of action “accrues.” This usually means when you “breach,” or break, the contract by not doing something you agreed to, such as not making a payment.
In California, the statute of limitations might start running on any one of these three events:
Usually, the statute of limitations calculation starts when your first missed payment becomes due. But in other cases (the details of which are beyond the scope of this article), the statute begins running on either the date of your last purchase or when you made your last payment.
Because these dates often occur close together, it doesn’t make a difference in most cases. However, if using one of these dates causes the statute of limitations to expire before your credit card company filed its lawsuit, it might be worthwhile to contact legal counsel to see if that start date applies to your situation.
Calculating the statute of limitations isn’t always easy. The credit card company might take some action, or you might inadvertently do something to change how much time the company gets to file a lawsuit against you.
Because some of these issues can be tricky, you should consult a legal professional if you are unclear about the statute of limitations period that applies to your case.
Sometimes the credit card company does something that temporarily stops the running of the statute of limitations or delays when it begins to run.
Your credit card company gives you additional time to pay. If your credit card company gives you additional time to make your payment, this action might extend the statute of limitations by delaying its start. For example, if you miss a payment on January 1, your creditor might extend your payment due date to April 1. Even if you never make that April 1 payment, the creditor could later argue that the additional time it gave you to pay extended the start date of the statute of limitations to April 1.
The statute of limitations is “tolled” due to unusual circumstances. Sometimes, the statute of limitations starts running but then is stopped (“tolled”) for a period of time. Tolling can happen if the person with the right to sue is affected by an unusual circumstance, such as that person is legally insane, incarcerated, or away at war. Once the special circumstance is over (for example, the creditor gets out of prison), the statute of limitations starts running. Tolling rarely happens with credit card companies.
With credit card contracts, it’s normal to make periodic payments. So, you must be careful not to reset the statute of limitations period accidentally.
You make a payment after not paying for a period of time. Once you stop paying, the statute of limitations begins running. If, however, you make a payment down the road, the statute of limitations resets.
No reset if your credit is revoked. The “reset” rule only applies if you still have a useable account. Once your credit card company closes your account, the statute of limitations doesn’t restart if you make a payment.
While you can’t verbally agree to waive the statute of limitations, in some cases, you can agree to waive it if you put the agreement in writing. So, it’s a good idea to carefully read anything your credit card company asks you to sign.
You waive the statute of limitations in writing. Before the statute of limitations runs out, the creditor might ask you to sign a document extending it for an additional period. If you sign such a document, the creditor gets additional time to sue you. Some limits apply, however, on the length of the extension, which is usually four years.
You make a new promise to pay in writing. After the statute of limitations expires, the credit card company might ask you to sign an agreement promising you will pay the debt. You don’t have to do so (rarely would you want to). But if you do sign such an agreement, it creates a new contract that obligates you to repay the debt. The statute of limitations on the old agreement is no longer relevant. If you default on a payment under the new contract, the statute of limitations begins running from that date.
Credit card companies and debt collectors must first sue you and get a judgment before forcing you to pay the debt against your will. A judgment is the court’s way of saying that yes, you owe the money the creditor claims you owe, and an employer or bank requires this proof before handing over your money.
Once it has a judgment, a credit card company can:
If a creditor doesn’t sue you by the statute of limitations deadline, it forever loses its right to get a judgment against you and use the above means of collection against you.
However, a creditor or collector doesn’t have to stop calling you, and the delinquent debt can still harm your credit. It just can’t force you to pay against your will.
Also, a creditor or collector might still file a lawsuit against you even if the statute of limitations has expired. If you get sued for a debt, but the statute of limitations has expired, you must answer the lawsuit and show that the suit is time-barred. (A “time-barred debt” is a debt where the statute of limitations has run out.)
If you don’t respond to the suit, a judge might rule in favor of the creditor or collector.
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