Statute of Limitations and the FDCPA

My previous article, New York’s Statute of Limitations – Another Pitfall to Avoid!, discussed New York’s Statute of Limitations, which is six (6) years for a foreclosure, pursuant to CPLR 213.

While some  jurisdictions have statutes of limitations which, once expired, absolutely extinguish the right of the creditor to any recovery, New York does not extinguish the creditor’s right to collect but allows the debtor to assert the Statute of Limitations as a defense to any judicial proceeding brought to enforce it, which will result in the dismissal of the proceeding.

In those jurisdictions where the right is extinguished, any attempt to collect the expired debt is “misleading,” which is an FDCPA violation, since the debt itself has been extinguished and there is no longer any debt owed (see my previous article - Fair Debt Collection Practices Act). In other words, merely requesting payment of a debt where the statute of limitations has expired in these jurisdictions violates the FDCPA which allows the debtor to commence a lawsuit against the creditor!

In jurisdictions like New York, however, which simply limits the remedy but does not “extinguish the debt,” courts have held that it is not an FDCPA violation to seek voluntary payments, but litigation cannot be commenced or threatened.

For example, in Illinois, a jurisdiction with a similar type of statute of limitations as New York, the court ruled, in Walker v. Cash Flow Consultants Inc, 200 F.R.D 613, N.D, Illinois, 2001, that it is not a violation of the FDCPA to attempt to collect a time-barred debt as long as a lawsuit is not filed or legal action threatened.

However, in another Illinois case, In Re Deborah Edwards, a Chapter 13 bankruptcy case decided October 6, 2015 (Case number 14D, 13263, adversary number 15A 003B4), the 7th Circuit held that filing a proof of claim in the Bankruptcy Court was similar enough to commencing an action for recovery that it was an FDCPA violation!

In summary, in those jurisdictions where the statute of limitations extinguishes the right to collect, you can not even request payment. However in jurisdictions like New York, where the debt is not extinguished, litigation cannot be commenced or threatened, and proofs of claim cannot be filed in the bankruptcy court, but voluntary payments can be requested.

Since the statute of limitations can be extended by a written acknowledgement of the debt signed by the debtor, one might consider the following strategy:

Request payment from the debtor and offer a loan modification agreement which contains a written acknowledgement of the debt. Once the debtor executes the loan mod and acknowledges the debt in writing, the statute of limitations will be revived, and should the defendant subsequently default under the loan mod you may now commence litigation.

Peter Roach
Peter T. Roach & Associates, P.C.
peter.roach@roachlawfirm.com