Lately, we have had a lot of clients who have received wage garnishments for very old debts. Many of them thought that their debts had passed the statute of limitations and were shocked to see their paycheck be hit by a garnishment.
Statute of Limitations can be a bit confusing. First there are multiple statutes of limitations based upon the nature of the transaction. In Washington State, the most applicable statute of limitations for debt is six years, because most financial transactions involve a written contract.
Even within the six-year statute of limitations period there are some complexities. For example, on a credit card, the six-year statute of limitations applies from the last time that you made a charge (which makes sense) or the last time you made a payment (which makes no sense). So lets say that you got a credit card in 2010. You charged on it for a couple of years and stopped making charges in 2012, but you continued to make monthly minimum payments until 2015. Most people would assume that since they stopped charging on the card in 2012, and we are now in 2020, that eight years have elapsed, and that the debt is no longer collectible. Unfortunately, those payments up through 2015, keep the debt within the six-year statute of limitations period and the debt is one that can be litigated. It might feel like you are being punished for doing the right thing (i.e. making payments), but unfortunately that is the state of the law.
Things get even more complicated when you get sued and a judgment is entered against you. Remember, that in order for a creditor to garnish your wages, they must have previously sued you and gotten a judgment. When a judgment is rendered against you in court, it is good for 10 years and renewable for another 10 years. Because the typical statute of limitations is six-years, most people are very confused to find out that they are being garnished over a very old debt. Let’s take the previous example…if you stopped paying in 2012, but the creditor sued you and got a judgment against you in 2014, you might think that you are out of the woods because six years has elapsed, but the truth is that the judgment would be good (and collectible) until 2024, and renewable for a further 10 years.
For that reason it is not unusual for very old debt to rear its ugly head and chase you down many years later. Many clients are really confused about why a creditor took so long to come after them. The reason lies a bit in the amount of the original judgment. When a civil judgment is rendered against you the interest rate is 12%, but if the original amount is relatively low, there is not a lot of incentive to start collection activity. On the other hand, if they wait a few years, that small figure will balloon up and then coming after you makes all kinds of sense.
So just because a debt is old, doesn’t mean that it is forgotten. Be smart about your old debts and don’t assume that they will never haunt you again, just because they don’t show up on your credit report any more, or because you stopped getting calls & letters from them.