Statute of Limitations of Debt in Maryland

Debt collection activity is subject to state law, including the laws governing the filing of a lawsuit when the creditor uses the court system to enforce the debt. An important law affecting the viability of a lawsuit to enforce debt is the statute of limitations. This law sets a deadline for filing the lawsuit. If the creditor misses the deadline, the debtor can prevail in the lawsuit. Maryland law generally gives creditors three years to file a lawsuit to enforce a debt.

Three-Year Statute

Maryland Code Section 5-101 states that a civil action must be filed within three years after it accrues. This is a general statute of limitation that applies to a debt, unless there is a more specific statute that applies to a particular debt. Debts based on contract, both written and oral, as well as debts based on open accounts, such as credit cards, are subject to the three-year limitation period.

Twelve-Year Statute

A special twelve-year statute of limitations applies to debts specified in Maryland Code Section 5-102. Included in the statute are debts based on promissory notes, most bonds, court judgments and contracts or other written instruments made "under seal." What constitutes "under seal" depends on the circumstances, but Maryland case law indicates it can be as simple as including the phrase "signed and sealed" near the debtor's signature. Debtors should be wary of such phrasing in a written instrument because of the impact it may have on lengthening the statute of limitations.

Defending a Lawsuit

A creditor can file a lawsuit on a debt even though the statute of limitations has expired. The law does not state that the debt is automatically voided, nor is there any way for the court to know that the statute expired. The debtor is responsible for bringing the statute of limitations issue to the court's attention. This is done by responding to the lawsuit and asserting the statute as an affirmative defense.

Reaffirmed Debt

Creditors and debt collectors are not legally prohibited from contacting a debtor about an expired debt. If a debtor reaffirms an expired debt, the statute of limitations begins again. This occurs when a partial payment is made or the validity of the debt is acknowledged in writing after the statute has already expired. If the statute has not yet expired, it will restart from the date of the payment or acknowledgment.

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Is a Letter From a Collection Agency a Legal Judgment?

When a person accrues a significant amount of debt, his lender may choose to outsource the collection of this debt to a collection agency. The agency will either purchase the debt outright or will agree to pursue the collection for a fee. Often, collection agencies begin their collection by sending a letter to the debtor ordering him to make good on the debt. Although the letter may sound official, it is not a legal judgment.

The Debt Collection Process

When a debtor accrues a debt, his creditor has a number of legal options for attempting to collect his money. Initially, a collection agency may simply send letters or place telephone calls to the debtor ordering him to pay. While the debtor may indeed owe money to the creditor, a letter ordering him to pay is not the same as a legal judgment compelling him to pay. A legal judgment must be issued by a court of law.

Legal Judgment

If the debtor refuses to make good on their debt, a creditor may file suit against the debtor in court. This involves filing a motion in a court of law asking the judge to compel the debtor to pay. If a judge hears the case and decides that the debtor is responsible for the debt, he will issue a legal judgment against the debtor. The debtor will then be legally required to pay under threat of forceful seizure of the money.

Collection Options

If a creditor receives a legal judgment against a debtor, he may send the debtor a letter informing them of this judgment. If the debtor still refuses to pay, the creditor may petition the judge to allow him to take a number of actions to collect his money, including garnishing the debtor's wages, freezing the debtor's wage or putting a lien on the debtor's property. All these judgments must be ordered by the court before they can be carried out. However, the creditor is not necessarily required to inform the person that he is taking these actions; requirements for notification vary according to state law.

Illegal Practices

According to the Federal Trade Commission, it is illegal under federal law for a debt collection agency to state that the letter it is sending is a legal form if it's not. Likewise, if a debt collection agency does send a legal form, it cannot state that the document is not a legal form. Similarly, a debt collection agency is barred from stating that it will take legal action against you if it does not intend to do so or if doing so is against the law.

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Laws for Collection Agencies in Pennsylvania

In Pennsylvania collections cases, the law often works to protect consumers from creditors. It's important to document any instance of creditor abuse and improper contact, and to speak with an attorney if things get out of hand. The more you know about Pennsylvania law, the more aware you'll be of your rights as a consumer.

Court Appearances

In Pennsylvania, the court can summon you to appear regarding a collections matter. However, the Attorneys for Consumers website points out that a collection agent cannot appear on behalf of a creditor in a court of law. The collection agent can retain an attorney who will represent the creditor before a judge.

Garnishments

According to Pennsylvania consumer attorney Greg Artim, no debt collector has the authority to threaten you with garnishment of your wages, except under certain extreme conditions. In addition, expenses such as credit card debt and medical bills do not qualify as debts that can lead to garnishment. Examples of cases in which garnishment can legally occur are judgments arising from student loans, divorce settlements, child support, back rent, certain taxes and fines arising from a criminal conviction.

Unfair Costs

According to the Attorneys for Consumers website, a collection agency may not attempt to collect money from you that is in excess of what the original creditor has asked the agency to recover from you. They cannot drive up the costs to you by demanding extra service fees, penalties or interest, unless such charges are legal and/or the original creditor has elected to pursue such penalties in the contract with the collection agency.

Deceptive Methods

The law forbids deceptive or abusive treatment by collection agencies. According to the Attorneys for Consumers website, a collector does not have the authority to come to your door with paperwork threatening legal action, or imply that your failure to pay a certain bill constitutes a crime. More importantly, an agency cannot make the paperwork look like it came from the office of a legally licensed attorney.

Statute of Limitations

For most cases involving debt, the statute of limitations provides specific windows of opportunity regarding collection. According to the Fidelity Information Corporation website, the statute of limitations for open accounts, such as credit card balances, is four years. In the case of domestic judgments or liens against real estate, the statute of limitations is five years. When an issue involves personal property, the aggrieved party has 20 years to act. For a foreign judgment, a party has four years to act against you.

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How Do Collection Agents Get Paid?

When an individual or business refuses to or is unable to repay a debt, the creditor may lack the will or the resources to pursue collection. In many cases, the creditor instead hires a collection agency to collect the debt. Some agencies buy debts outright, but they usually receive a commission based on the amount of debt they collect, sometimes in addition to a flat fee.

Commission

Generally, a collection agency is paid based on the amount of debt it is able to collect. Usually, payment is calculated as a percentage of total collected debt. For example, a debt collection agency may be paid at a rate of 40 percent. If the agency were able to collect $10,000 worth of debt, it would be paid $4,000. This commission structure provides the agency an incentive to collect as much of the debt as possible.

Flat Fees

In addition to the commission, a collection agency may also receive a flat fee. Generally, this fee is relatively small, with the bulk of the payment coming from potential commissions. However, because payments for these commissions are deferred for some time, the agency may demand an upfront fee, too, or an advance on the commissions. Agencies are seldom paid a flat fee up front, as this leaves them with little incentive to collect on the debt.

Purchased Debt

In lieu of being hired by creditors, some collection agencies purchase the debts directly from the creditors, often for pennies on the dollar. The collection agency then attempts to finance itself by collecting money from the debtors who owe money on these accounts. This form of payment resembles speculative investment on the part of a collection agency, as it must estimate how much money it believes it can collect before purchasing debts.

Considerations

The compensation structure for individual collection agents employed by an agency also varies. While in some cases, individual agents are paid a commission based on the amount of debt they are able to collect, in other cases the agents are paid like a regular employee, earning either an hourly rate or an annual salary. Often, agents receive a small salary but earn most of their money off commissions.

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Can Credit Card Companies Take Your Home in Florida?

When you fail to make credit card payments as agreed, creditors can take you to court and attempt to collect through garnishments and levies. However, Florida law protects your home from seizure for most consumer debt including credit cards. If a credit card company initiates a lawsuit, you retain the right to claim a homestead exemption and protect your house from judgment.

Lawsuit Process

Once you receive a court summons or notification of an impending lawsuit, the courts provide a limited time frame for you to answer the complaint. Do not ignore a lawsuit as this may result in a judgment against you. If you lose the case, creditors may request a writ of garnishment or levy against your assets or property. Any nonexempt property, wages or funds may be seized to repay the debt.

Homestead Protection

Florida law protects your home from levies or seizure for most debts. Under Chapter 222 of the Florida Statutes, credit card companies cannot take your home for outstanding debt. Do not assume the exemption exists until you contact the court. Prepare a written statement describing the property and your claim that the property is your home, therefore exempt from judgment. Sign and date the letter and file a copy with your circuit court. If there is an existing levy on your home, you can declare a homestead exemption after the judgment or prior to a forced sale.

Concerns

While your home may be protected from credit card companies, other property may not be exempt. Judgments may lead to wage garnishment, bank levies or seizure of nonexempt personal property. Personal property exemptions include but are not limited to vehicles worth up to $1,000, other assets worth up to $1,000, some real estate equity and necessary medical equipment. Additionally, most government benefits cannot be garnished for credit card debt. As with homestead exemptions, do not assume protection. Provide the courts with proof of income or property exemptions.

Debt Collection Laws

The Fair Debt Collection Practices Act protects you from unfair or deceptive collection attempts. Creditors cannot threaten to take your home or otherwise falsely claim legal action forbidden by federal and state laws. If a debt collector uses deceptive practices or otherwise harasses you in an attempt to collect on credit card debt, file a complaint with the Federal Trade Commission and your state attorney general. Additionally, you retain the right to sue a debt collector for violating the law within a year of the violation.

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Eight Effective Debt Reduction Tips

It's easy to feel overwhelmed when you're paying down your debt, but when you have encouragement and a solid plan of action you'll feel more motivated to stay on track. You can get your debt paid off more quickly by utilizing eight effective debt reduction tips.

Budget

Before you start paying down your debt, you need to figure out how much you have to contribute to it. Think of your budget as a road map to your financial freedom -- what route do you need to take to get yourself out of the red? To create a budget, compare your recurring monthly costs and out-of-pocket expenses with your income. In areas where you are overspending, think of ways to cut back so you may pay more toward your debt.

Make It Fun

In many ways, budgeting is like dieting -- it's a diet for your wallet. In both instances, many people quit because they feel too restricted. One way to keep yourself from feeling overburdened by your budget is to swap out the things you love with less expensive versions. For example, if you love books, consider using the library for most of your reading materials rather than heading to the bookstore. If you love getting together with friends, why not rotate dinner parties at home instead of going out?

Negotiate Interest Rates

The higher your interest rate, the more you're paying on your debt, and the longer it will take to pay that debt off. Lowering your interest rate may be as easy as placing a telephone call to your credit card issuer. Gather any credit card offers you've received in the mail to get an idea of a target range for comparison, then call your creditor's customer service department and ask what the representative may do to help lower your rate. If you don't succeed the first time, call back another day and ask again.

Pay Yourself First

It's vital to pay more than the minimum on your debt to gain momentum on paying it all off. While your minimum payment may be $100, set the minimum higher in your mind, perhaps at $200. Then, when you get paid, you will know that you're paying yourself first by dedicating $200 to your debt and you won't automatically think you have money to spend. This tactic keeps you on track so that you plan for your income before receiving it.

Strategize

Depending on your finance methodology and psychology, you may choose to either pay off the debt with the lowest interest rate first, or the one with the lowest balance. The benefit to paying off the debt with the lowest interest rate is saving money by eliminating that hefty interest immediately rather than allowing it to sit and consume more money over time. Those who need to see their hard work in action may choose to pay off the smallest balance first, in what's also referred to as the "debt snowball plan." After paying off the smallest debt, you'll have more to contribute to the next smallest debt, then the one after that. Neither method is one size fits all, so it's important to consider what will work best for you so that you'll stick with it.

Reward Yourself

As you're working toward the larger goal of paying off your debt, it's important to keep yourself motivated as you reach each milestone. For example, put an extra $5 each week to the side as you're paying down your credit card. When you pay off that card, celebrate by treating yourself to something you like such as dinner out or a massage. Recognize your achievements to give yourself a boost as you continue to pay down your debt.

Contribute Windfalls

When you receive a bonus or monetary gift, put it toward your debt rather than spending it immediately. Take a rain check on your purchase, which will likely still be there for you once you've paid off your debt.

Find Professional Help

If you're stuck with no foreseeable way out of your debt problem, credit counseling is vital to getting back on track. Credit counselors will help you to create a budget and decide on a course of action. Your options may include debt consolidation, management or settlement. Visit the National Foundation for Credit Counseling website to find a reputable credit counseling agency in your area.

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Should I Reply to Debt Collection Letters?

Debt collectors often mail letters asking people to pay on delinquent accounts, and it's generally fine to ignore the letters if you are unable to pay. However, there is not a hard and fast rule on this, and some letters may merit a response. It all depends on the content. Delinquent debt on credit cards and other loans can lead to debt lawsuits, meaning you should carefully read every letter from a debt collector -- even if you do not intend to respond.

Law Firms

A debt collection letter from a law firm or attorney in your state is potentially a serious issue and could indicate that the creditor is considering filing a civil suit against you. Many debt collection agencies are operated by law firms, but only those practicing in your state can file a lawsuit against you to collect the debt. There's no guarantee that the law firm will sue. However, the threat of a suit is real, and you should respond to letters from a debt collection attorney in your state.

Initial Contact

A federal law called the Fair Debt Collection Practices Act requires all debt collection agencies -- including law firms -- to contact you in writing when they begin collection efforts for a debt you owe. Generally, the firms make initial contact by telephone and are required by law to follow up in writing within five days.

Verfication

Important information about your rights is listed in the first written correspondence from the debt collector, and you should read and respond in writing to the information to protect your rights. Federal law gives you the right to force the debt collector to provide written proof that it has the legal right to collect from you and that the debt is valid. For example, you have the right to ask the debt collector to send you copies of every billing statement issued on the account by the original creditor or to produce a copy of a promissory note or contract that you signed.

Roadblock

Federal law prohibits the debt collector from continuing collection attempts until it provides proof that the debt is valid and you owe it. That can take months because the debt collector must request the information from the original creditor. In some instances the information is not available on old debts because the bank sold the account for pennies on the dollar with billing statements and other information subsequently misplaced or lost.

Legal Advice

People with multiple debt collection accounts should seek advice from an experienced consumer affairs attorney. Arranging a flat-fee arrangement for consultation is a sound strategy for deciding how to respond to debt collection letters. During a few meetings with the attorney you can learn which types of collection letters to ignore and which to respond to.

Options

The Fair Debt Collection Practices Act gives you the right to inform debt collectors that they should not contact you at all and instead should send all notices to your attorney. Debt collectors work on commission and usually place more emphasis on accounts that appear easy to collect because the debtor seems intimidated or is not knowledgeable about her rights. Acting on sound advice from an attorney -- or having all correspondence sent to the attorney -- sends a clear message that you are not a pushover.

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