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Wednesday, November 14, 2007


The explosion of the internet has led to a proliferation of myths regarding the
uncollectibility of debts and defenses to debt collection. These myths have spread like wildfire across blogs and websites and they are all false and dangerous.

I haven’t heard anything about this debt for 1, 2 or 3 years and therefore you can’t sue
me for it.

The only time limitation for the collection of a debt is a state’s statute of limitations. A statute of limitation is a deadline established by the Legislature of a given state for the collection of an open account debt. The mere fact that no one has contacted you about a debt for 1, 2, or even 3 years does not render it uncollectible. You should also be aware that typically the statute of limitations for the state within which you reside will not govern your credit card debt. Credit card applications contain a choice of law provision. This is an agreement between the parties to be governed by the law of a particular state. The credit card companies typically choose a state with an extremely long statute of limitations. Rhode Island, a typical state chose by credit card companies, has a ten year statute of limitations for open accounts.

You can’t sue me because you don’t have a signed contract.

Most people fail to understand that when they sign a credit card application and send it back in they have actually signed a contract. I now advise all of my personal clients to keep copies of those applications when they sign them and send them back in. However most individuals typically do not. Regardless a credit card company will typically not issue a credit card without a signed application and therefore without a signed contract. However, even if there is no signed application, you still are parties to a contract. The contract may be an implied and equitable contract. In other words, the credit card company has extended you credit and you have taken advantage of it by purchasing things on their credit. You now have a legal obligation to repay that money and the court will construe that to be a contract.

I have never heard of the company that is contacting me or suing me and I have no agreement with them, therefore I don’t have to pay them.

There is an entire industry in this country now devoted to the purchase and collection of debt. Once you default on a credit card debt and the credit card company is unable to collect it, they will package it or bundle it with thousands of other delinquent debts and sell it to a debt buyer. The debt buyer will pay pennies on the dollar for the debt and then will attempt to collect it. This is perfectly legal. All contracts are assignable, unless there is a written provision in them barring assignment. What this means is that a credit card company can assign (sell) your debt to another company and they do not have to get your permission or even give you notice. That new company simply steps into the shoes of the original creditor.

You can’t sue me I am making payments.

Perhaps the most prevalent myth circulating on the internet is that if you are making minimal regular payments you cannot be sued. The truth is that once you default on a debt you can then be sued for the full balance at any time. Even if you recommence making the full payment, your default has rendered the full balance due and payable at any time. The mere fact that you are making minimal or nominal payments on a regular weekly, monthly or bi-monthly basis does not prevent a creditor from suing you.

There are hundreds of other myths and I will address them in future articles.


Anonymous said...

I always enjoy your posts, but sometimes it seems to me like you are holding on too tight to your collection lawyer cap and not giving your readers the full lay of the land.

For instance, you're right, of course, that credit card agreements do often contain a choice of law provision, but the FDCPA requires the debtor to be sued either in the judicial district the consumer resided when the contract was signed, or where the consumer resides currently. In practical terms, this means that the defendant's home state's statute of limitations applies by default, and the burden of proving the choice of law provision applies is on the plaintiff. They must be able to produce a legible, complete copy of the terms and conditions in the first place, and then they must provide someone who can knowingly authenticate the documents, and can be cross-examined if the defendant wishes. In the third party debt industry, most plaintiffs can't jump these hurdles, especially after many years have gone by, and so the statute of limitations of the defendant's home state will still apply.

Likewise with an equitable contract -- if a plaintiff claims equitable relief, then they are bound by the defendant's home state's statute of limitations. Further, as far as I'm aware, no remedy based in equity is available when the injury arises out of express contract.

A reader might take away from your post that a debt collector who comes out of the blue and demands you satisfy an 8-year-old account has strong grounds to sue you and will prevail, when the opposite is more likely true.

At any rate, I do appreciate the work you do here, and your basic claim that the internet is packed with dangerously incorrect information about debt law is completely correct. If I've added to that sum, I'm sure you'll correct me.

Anonymous said...

Another good post that clarifies the statute of limitations myth. As you are aware, most debts in the state of Tennessee have a limitation of six years. It should also be mentioned that just because a debt has exceeded the statute doesn't mean you no longer owe the debt. It simply means that a collector doesn't have legal standing to collect.

mylyndoll said...

I must start off by saying that you are doing a GREAT service by telling the people who have felt hopeless, like myself, how to navigate through the mess that has become my life with old debts. Debt collectors don't play fair for the debtors because if it was just about making good, even in part, on the debt they would cut the debtors at least a comparable deal as they do between themselves. But I digress.

I have been trembling over the mess that my credit history became from my lack of understanding of the full scope of paying credit back on time! My parents did not get it, either because they did not teach this when I was young, to pay these bills with all vigilance. This really should be taught in school, not as optional course held at the local community center for low-income residents; it should be taught within the school system itself because when you mess it up, it takes years to recover, if ever.

Now, I did write you for something specific. I was just served with a Summons from a credit card that has to be more than 7 years old because they took it off of my credit report this year when I wrote to them that it was "old" and "closed" but these people are suing me. They are not the original creditors but a re-sell firm.

My state statue of limitations is 6 years on credit card debt but how do I address this? Write them back and tell them that it has exceeded the time limit for collection and request that they send me the original information? I don't want any grass to grow under my feet on this one.

Thanks again for doing this blog. You are a credit to your profession!

PJSandAMovie said...

My comment pertains to the last paragraph. My credit card was sold off to countless creditors over the years. I began making payments to a company last year, but due financial difficulties I couldn't make anymore payments. They sued me, but they didn't win. I received a letter from the court stating "Plaintiff's Motion to Enforce Settlement is Denied." So I took that to mean that they lost the suit. Am I right in thinking this? Because the lawyers continue to send me certified letters and threatening my arrest and imprisonment.

kb said...

The Snake???

Anonymous said...

I believe you are not a legal expert. You are bias in your writings. You are a pro-creditor. You are missing many things. You should study economics so you will be enlighten how the money and credit system works. There is a signed credit card contract? Baloney. There is a signed credit card loan document? baloney? If there is a loan document, where is the note?

What are the 4 elements of a contract?

Study more.

Anonymous said...

You are wrong. The contract was breached when defaulted upon. The OC sold the rights to collect, did not convey rights to any contact. I couldn't believe you wrote what you did.

Debt Settlement Guide said...

You are right about RI and the statute of limitations. I read a few of the credit card agreements I had on hand and all of them stipulate to RI. I really like some of the laws that let you turn the tables on debt collector's or collection calls. If anyone here knows of any good tactics, please email them to me at

If it is all right I would like to post a link to this blog on my resources page too! I am building a site that offers free legal guides to debt settlement and also a list of all of the laws and regulations for each state in regards to consumer debt, credit, and bankruptcy rights.

Here is a link to my site:
Debt Settlement Legal Guides

debt relief said...

However, with competition in the market ascending to next level, lenders have made it clear that they are ready to take that extra step to maximise their business. Hence, finding a deal with comfortably long repayment tenure is not that big deal especially in modern-day UK lending market.

Anonymous said...

Your post is old so you may not get this, but: While I agree that the credit card company can still win if they can't produce the contract, how about this:

Sprint wants to collect an early termination fee from me. Yet, they can't produce the contract (I state I was out of contract, so produce it please and if I owe you I will pay).

Although I used sprints services, and paid for them, I never used the early termination fee service (nor did I get a reduced rate phone, I paid cash).

Thoughts? Seems to me that if they can't produce the contract that they are screwed.

Anonymous said...

In response to PJSandAMovie. If you have any proof in writing from the collection agency that says that they will have you arrested and put in jail. You need to contact a lawyer and sue the collection company for illegal activities and damages for mental duress that they have inflicted upon you. If the threats are not in writing you could get a group of witnesses together and call the debt collector back using speaker setting on your cell phone and let your witnesses hear him make those threats.