Arizona Supreme Court provides clarification on Statute of Limitations on a Collection Lawsuit.

Mertola v. Santos: S.Ct. of AZ

Arizona statutes allow a debt collector six years to file suit on an outstanding debt (See A.R.S. Section 12-548(A)(2)). The question at issue is when does the clock begin to run? This recent ruling by the Arizona Supreme Court holds that the six years begins to run with the first missed payment of the debt.

Credit cards are governed by an “Account Agreement”, which provides for the option to accelerate the debt upon default. The acceleration provision allows a bank to declare the full amount immediately due. As a general rule, a cause of action commences when the ability to sue a party arises, and the previous theory of thought was that the statute of limitations does not begin to run until the creditor decides to accelerate the debt. With this thought, the creditor could decide when to call a debt due and could therefore delay the commencement of a possible action.

This new ruling, a debtor can get more clarity on when the statute of limitations began to run. With this rule, there is a clear accrual date. It’s noteworthy, that if a payment is missed, and then the account is brought current, the statue of limitations then resets to the next missed payment. It is also noteworthy, that the premise to this case revolves around the account agreement that allows an unsecured debt to be accelerated. Theoretically, a credit card company could possibly rewrite agreements to avoid this provision and possibly circumvent the statute of limitations accruing.

Our office discussed this case with an attorney representing the creditor and we mutually agreed the new rule will have little effect on the overall industry practice. If anything, lawsuits will be filed more quickly, which may add court costs and fees. My overall thought? Avoid credit card lawsuits by preemptively seeking help.