The “Time-Barred” Trap: Debt Past the Statute of Limitations Won’t Prevent a Lawsuit

My last few articles have focused on issues related to creditor lawsuits. I’ve explained the process when sued, including responding to a lawsuit to avoid a lien; otherwise, you are at risk of losing the equity in your home. By actively requesting Discovery, the required exchange of relevant financial documents, you are building your case, your best option for debt defense. This includes possible objections that can be filed by both parties.

The advantage of the Discovery process is that you gain valuable time, especially if you plan to file for bankruptcy. This article will be a continuation of these issues, including filing a motion to dismiss the case.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

The Statute of Limitations Isn’t Automatic

Because debt collection agencies buy debt accounts in bulk, it’s common for them not get to a case on time. So what happens if a creditor lawsuit has been filed against you after the statute of limitations has expired, so the creditor shouldn’t have been in the courthouse to begin with?

There is a persistent myth when it comes to creditors that if the debt is too old, creditors can’t sue. That is a dangerous misunderstanding of debtor-creditor law. Defenses in a lawsuit are not automatic. A good defense requires a good offense.

So even if there is a legal argument to be made regarding the Statute of Limitations (SOL), you must be proactive by filing a motion to dismiss. If you fail to do so, the case will proceed, and ultimately, the court will grant a judgment on the debt in favor of the creditor.

The “Zombie Debt” Phenomenon

Debt buyers often purchase “portfolios” of charged-off accounts for pennies on the dollar. Frequently, these debts are past the legal limit for collection, but that doesn’t stop creditors from filing a debt collection lawsuit.

Creditors hope that you ignore the lawsuit or are too intimidated or confused to respond, resulting in a default judgment being entered. This allows them to proceed with collecting on the debt.

The Solution: The Motion to Dismiss

If you have been sued on a debt that has exceeded the timeframe in the statute of limitations (which varies per state), then the next step is to file a Motion to Dismiss (MTD).

Unlike filing an Answer, which is a direct response to the lawsuit, which moves the case forward by proceeding with the Discovery process, mediation, or a settlement conference, and ultimately a trial, a Motion to Dismiss is a request asking the judge to throw the case out immediately.

Why Focus on the Statute of Limitations?

When filing a Motion to Dismiss based on the Statute of Limitations, you are highlighting a “procedurally barred” claim. Here is what you need to know:

The Face of the Complaint: A judge can grant a dismissal if the creditor’s own paperwork proves the debt is too old. If their complaint says the last payment was made after the Statute of Limitations had expired, the case is ripe for dismissal.

The Affirmative Defense: You must explicitly state that the claim is barred by the Statute of Limitations based on your state’s specific statute. DO NOT ignore the lawsuit, and this waives your defense.

The Shifting Burden of Proof: Once you raise the debt is time-barred because of the Statute of Limitations, the burden often shifts to the creditor to prove that the clock has restarted or that they are still within the allowable timeframe. This would require documented proof, and as referenced in previous articles, creditors tend to be poorly organized because they are buying a substantial amount of accounts simultaneously.

The Professor’s Warning: The “Restart” Trap

The most common way creditors defeat a Motion to Dismiss is by proving the debtor “reset” the clock. In many states, making even the smallest of payments or even signing a letter acknowledging that you owe the money can restart the Statute of Limitations from zero. Creditors might state that, in good faith, make a payment, and that’s when the clock starts ticking again. I explain this issue in this short video.

The Professor’s Conclusion

A lawsuit on a time-barred debt is a legal bluff. By filing a Motion to Dismiss, you are calling that bluff. You are forcing the creditor to prove their right to be in court, rather than allowing them to profit from your silence.

Moving Forward

If you are unable to move forward with a Motion to Dismiss and a payment arrangement cannot be agreed to, then consider filing for bankruptcy and freezing the lawsuit because of the Automatic Stay.

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