How Long Does a Debt Collector Have to Sue After a Credit Card Has Been Canceled?

Jared King opened a credit card account in 1989 and closed it 10 years later. He cut his card in half, mailed it back to Discover Bank and asked how to pay off his $8,514 balance and close the account. King never got directions from Discover. But six years after returning the card, he was sued by Portfolio Recovery Associates LLC, a debt buyer based in Norfolk, Va., which had purchased the debt from Discover Bank. In 2005, when the interest and fees had ballooned to over $12,000, Portfolio took King to court.

Without a lawyer, King, of Coxsackie, N.Y., argued that Portfolio had waited too long to file the lawsuit. A trial court disagreed, as did the intermediate appeals court. But in an April 2010 ruling, New York's Court of Appeals decided that King was right. There was a three-year window for the lawsuit to be filed against King, and Portfolio had missed it. Timothy Murtha, a Long Island, N.Y., attorney for Portfolio, declined repeated phone and e-mail requests for comment.

"Justice has been served ­ — at long last," King said in a phone interview.

With new technology, the $11 billion-per-year debt collection industry has exploded, especially in the courts. Debt buyers pay pennies on the dollar for old debts, use databases to file automated lawsuits, and make huge profits when they collect balances inflated by interest, penalties and fees. Debt collection is the Federal Trade Commission's second-highest consumer complaint. Last year, the agency received an average of 327 debt collection complaints a day.

"It is unfair to collect interest and fees which are not owed, and certainly unfair to file lawsuits after it is too late to do so," said Julie Nepveu, senior attorney for AARP Foundation Litigation, which filed a friend-of-the-court brief on King's behalf.

AARP is interested in preventing debt collection abuses, said Nepveu, since unaffordable debt is a serious problem for many older people. "When debt collectors overreach … it puts people's financial security at risk."

What it means to you: If you are sued for an old debt, you may have a good defense. Debt collection lawsuits must be timely, accurate and fair. But be careful. If you make a partial payment, you may reaffirm the debt and extend the time for a collector to file a lawsuit.

Emily Sachar is a journalist and author based in Brooklyn, N.Y.