As the old saying goes, if you don’t use it you lose it. The “it” in this case is the right to sue someone for an unpaid debt. Every state has a set of laws that create a deadline for creditors to sue for an unpaid debt. In Nebraska there are two key laws that govern debt collectors when it comes to suing for an unpaid debt.
- Written Agreements. An action upon a written contract can only be brought within five years. Nebraska Statute 25-205. This law covers most credit card agreements, bank loans, and other written agreements to pay money. A voluntary payment of any amount basically “resets” the statute, so we measure the five years from the date of last payment.
- Oral Agreements. An action upon a verbal contract can only be brought within four years of the date of last payment. This provision covers most medical debts. Nebraska Statute 25-206.
In recent years there has been a dramatic increase in sale of these time-barred debts to junk debt buyers who call to collect debts that are 5, 10, 15 or even 20 years old. Very often they lack any real documentation of the debt owed and they try to trick the debtor into making a voluntary payment, thus resetting the statute of limitation. I am frequently hearing clients and former clients call about abusive phone calls where the debt collector threatens to have the debtor arrested that very day if a payment is not made.
WHAT SHOULD YOU DO IF YOU ARE SUED ON AN EXPIRED DEBT?
- Answer the Lawsuit. If you are sued on an expired debt is it important to (1) file a written answer to the lawsuit with the Clerk of the Court and (2) specifically state in the written answer that the statute of limitations has expired. The statute of limitations is an Affirmative Defense. What that means is that you must affirmatively claim the defense in your written answer.
- Demand an Account History. If you believe no payment has been made a debt in more than 4 to 5 years, demand that the debt collection attorney provide you with a copy of the account history showing all payments and charges to the account. In legal terms, we call these demands Interrogatories and Motions to Produce Documents. In simpler terms, this is basically a letter written to the debt collector’s attorney demanding that they answer basic questions and that they supply you with requested documents. If the debt collector cannot supply you with information as the date of the last payment, the amount of the last payment, whether the payment was made with a bank check, credit card or cash, that is fairly persuasive evidence that the debt may have expired.
- Counter-sue for FDCPA violaiton. It is illegal for a debt collector to file a collection lawsuit on an expired debt. Such lawsuits violate the Fair Debt Collection Practices Act (FDCPA). Under the FDCPA you may be entitled to $1,000 of punitive damages plus they must pay for your attorney fees if you prevail. If you are sure the debt has expired, consult with a FDCPA attorney in your area.
IS THE STATUTE OF LIMITATIONS TOLLED DURING A BANKRUPTCY CASE?
This is a very important topic for attorneys practicing in consumer bankruptcy cases who represent debtors owing Private Student Loans. Bankruptcy Code Section 108(c) provides that if a statute of limitation would normally expire during the administration of a bankruptcy case, the statute is tolled for an additional 30 days after notice of the end of the bankruptcy case. The big question is whether the Nebraska statute of limitations is tolled during the administration of the bankruptcy case. The answer to that question was provided by the Nebraska Supreme Court in the National Bank of Commerce Trust & Savings Ass’n v. Ham decision. In short, the court ruled that the Nebraska statute of limitation is not tolled during a bankruptcy case except for the additional 30 days provided under Section 108(c) of the Bankruptcy Code. This is a very key ruling for debtors owing substantial private student loan debts who may benefit by filing a Chapter 13 bankruptcy case to seek protection while the statute of limitation runs out on their private student loans. More on this topic later.
Image courtesy of Flickr and Patrick Marlone.