A creditor who wants to sue a debtor to recover an unpaid debt has a limited time in which to do so. This time, known as the statute of limitations, is established by the laws of each state. A creditor can file a debt lawsuit in state small claims court, but these courts have additional restrictions that affect the case.
Statute of Limitations
A statute of limitations is a specific law, a statute, that limits when a person or entity can initiate an action. An action is a lawsuit, and initiating an action means filing a lawsuit in court. The statute of limitations, therefore, limits when a creditor can file a lawsuit against the debtor. The statute time limit begins once the cause of action has occurred. A cause of action is the set of circumstances or upon which the creditor's claim is based. In a debt situation, the cause of action typically occurs when the debtor defaults on the loan.
Kinds of Debt
States differentiate debts into four categories for the statutes of limitations: open accounts, oral agreements, written contracts and promissory notes. A promissory note is a document in which the borrower expresses an unconditional promise to repay a debt. A written contract, on the other hand, is a document in which both the debtor and creditor enter into a binding agreement. An oral agreement is a verbal contract on a debt, and an open account is any revolving form of credit, such as a credit card, regardless of whether a written document is involved.
Limitations
Each state has its own statutes of limitations. These differ widely between states and even between the kinds of debts involved. For example, according to Nolo, California's statute of limitations on oral contracts is two years, while the limit on written contracts is four years. Louisiana, on the other hand, allows 10 years for both written contracts and oral agreements.
Small Claims
While the time frame in which a plaintiff can file a small claims court case varies depending on the nature of the debt and the state, small claims courts themselves have limits that affect the claim. Small claims courts limit the damages on any claim filed with the court. This means that if the plaintiff wins the case, he can only recover as much as he claimed up to a limited amount. For example, if the state small claims court is limited to awarding a $5,000 judgment and the plaintiff files a small claims case to recover on a $7,500 debt, he can only recover $5,000 if he wins.
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