These days many people in Contra Costa County and the greater Bay Area are stuck with unpaid debts from the recession of 2007 to 2010. Often people trying to get their finances back on track get a copy of their credit reports and see delinquent debts still showing after many years. Naturally, they wonder what they need to do to get past all this? The answer requires an understanding of the important distinction between legal liability and credit reporting. Generally, things can remain on a credit report long after the debt becomes legally unenforceable as discussed below.
Statute of Limitations
These laws exists in every state and limit when a lawsuit can be filed. In California, Code of Civil Procedure section 337 requires any lawsuit for breach of a written contract – like a credit card, medical bill, payday loan – be filed within 4 years of when the last payment was made on the account. This means if no payments are made on an account for 4 years, the creditor loses its right to obtain a court judgment. The trouble is that unless you go to court and assert the statute of limitations, the court may enter a judgment against you.
New Rule Protects Consumers From Late Claims by Debt Buyers
Delinquent debts are often sold from one company to another. In fact, there is an entire industry dedicated to buying and selling debts. These companies are called “Debt Buyers,” and are now subject to new laws in California. California Civil Code section 1788.56 prohibits a “debt buyer” from filing suit to collect on a debt when the statute of limitations has expired. The definition of debt buyer is broadly worded. The difference is that consumers will not be summoned to court by debt buyers to defend claims after the statute of limitations has expired. Similarly, the courts will not be burdened with useless lawsuits. The new law provides for damages and attorney fees if a debt buyer intentionally violates the law.
Credit Reporting is Different
A credit report is designed to be an accurate chronology of what happened with a person’s finances, good and bad. Most items will appear for 7 years. This means the car you paid off 5 years ago will still show as good credit, it also means the bill you got behind on or failed to pay 5 years ago will show as bad. The result is that credit reports can list unenforceable debts. People often assume if they pay a delinquent bill it will no longer show as bad on their credit report which is not the case. The only way to avoid having things show as bad credit is to pay on time, paying late is not the same.
What About a Judgment?
Perhaps you’ve been sued and the creditor obtained a judgment? In most cases it’s too late to assert the statute of limitations or any other defense. If you have a judgment against you it gives the creditor the right to garnish wages, levy your bank account, put a lien on your house or business or all of these. The bankruptcy laws are the laws society provides to allow a person to have most debts forgiven. Bankruptcy can wipe out credit cards, medical bills, and collection agency bills. After bankruptcy the calls, letters, and lawsuits all stop. Bankruptcy does not forgive student loans, alimony, child support or crime. Bankruptcy is a viable, long term solution for many people struggling with debts.
At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free in-office consultation. We have offices in Walnut Creek, Antioch and Hercules.