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Part 1: Be careful how you handle your old consumer debts in Virginia

Complex legal issues can arise concerning the statute of limitations.

For a variety of reasons, people find themselves faced with old personal debts like credit cards, installment contracts for consumer goods, service agreements and others. Before deciding what to do, if anything, about an old debt – whether you believe you originally owed the money or not – it is important to understand the legal impact of the applicable statute of limitations as well as the limitations on what a debt collector can do about the debt.

What is the statute of limitations?

Generally, a statute of limitation is the legal deadline for filing a lawsuit, determined by the type of legal claim and the law of the applicable jurisdiction. These time limits on lawsuits help to prevent claims from getting stale. For example, as time passes, evidence is no longer fresh, including witness’ memory and witness’ availability.

According to Black’s Law Dictionary, statutes of limitation provide “finality and predictability in legal affairs …” In the context of a consumer debt, the limitations period normally means that an individual should not have to worry about a surprise lawsuit on a years-old debt, whether it was disputed, unpaid because of financial crisis or the subject of another scenario.

The law of contract governs most consumer-debt claims. Virginia law provides that, in most situations, the statute of limitations for breach of a written contract is five years and of an oral contract, three years. Certain contracts for the sale of goods that are governed by the Uniform Commercial Code or UCC have a four-year statute of limitations. Other narrow exceptions may apply.

When does the statute of limitations start to run?

The date on which the statute of limitations begins is called the date it accrues. In Virginia, the statute of limitations in a breach of contract action normally accrues on the date the contract is breached.

For an installment contract, each time an installment payment is due and unpaid, the limitations period starts over or retriggers, so to speak.

What is the practical effect of the statute of limitations?

If a debt is time barred by the running of the statute of limitations, it does not mean that the debt itself has been extinguished. Instead, in most situations, it means that the statute of limitations can be asserted and proved by the debtor as an affirmative defense in the creditor’s lawsuit to enforce the debt.

If the statute of limitations is not properly raised in a lawsuit on the debt, the court will likely hold that the debtor has waived that defense and can be sued on the debt, despite it being otherwise stale.

Can the statute of limitations be retriggered?

Even if a contract claim is time barred, also called a stale debt, if the debtor decides to try to pay down the amount still owed and resumes payment, a court could interpret this payment as a reaffirmation of the debt by the consumer, which could potentially revive the obligation, despite the statute of limitation. This could happen even if the debtor’s payment was only meant to be a good faith gesture to the creditor.

Legal counsel important

The legal issues surrounding a stale contractual debt can be extremely complex. This article has only introduced some basic concepts, but in any given scenario, an experienced consumer protection attorney can provide legal advice to the debtor about his or her rights, obligations and options.

When might a debt collector violate federal consumer protection law?

Part 2 of this article will discuss the Fair Debt Collection Practices Act or FDCPA, which is a federal law protecting consumers from deceptive, abusive and unfair collection practices by creditors and debt collectors. Certain kinds of collection activity in the context of stale debts can violate the FDCPA.