A recent Arizona Supreme Court case made a crucial ruling on the statute of limitations for credit card debt collection. As dry as it sounds, the ramifications of the ruling could impact many who find themselves in debt and facing bankruptcy. To spare you the need to look for the court’s opinion, we’ll walk you through the Arizona Supreme Court’s 2018 ruling in Mertola v. Santos.

The Defendant, Alberto Santos, stopped making payments on a credit card in 2008. More than six years later the debt was bought by the Plaintiff, Mertola who proceeded to sue Santos for the entire balance. The statute of limitations for credit card collection is six years from the date when the cause of action has accrued. Santos argued the cause of action for suing on the entire balance accrued in 2008 when he stopped making payments. Mertola countered that the clock for statute of limitations for suing on the entire balance (as opposed to individual past due payments) started when the debt was accelerated in 2014.

Here’s where it gets tricky, the credit card agreement had an optional acceleration clause that Mertola did not exercise until shortly before filing the lawsuit. An acceleration clause is included in most loan contracts and allows the lender to demand payment in full for a debt if the borrower doesn’t meet certain expectations, such as missing payments or some other event of default. Mertola’s argument had the support of prior cases holding a cause of action for not yet due payments under an installment loan; e.g. promissory notes, does not accrue until accelerated.

The Arizona Supreme Court decided an optional acceleration clause in a credit card agreement is not enforceable and agreed with Santos that the lawsuit was barred by the statute of limitations. The Court reasoned that credit card lenders could be motivated to delay acceleration of a debt as a way to functionally eliminate the statute of limitations while permitting interest to accrue. As the Iowa Supreme Court ruled in a similar case, acceleration “is a shield, not a sword” for creditors, and is not designed to empower creditors to impose additional interest burden upon an already distressed debtor.

So what does all that mean for you? In short, the ruling clarifies that the statute of limitations on credit card debt begins upon default, and after six years, the statute of limitations defense is available. It is important to note, the statute of limitations is an affirmative defense that must be presented and argued to the court. If this defense is not presented timely to the court it will be forever lost. It is therefore essential to consult with an attorney as soon as possible after being served with such a lawsuit.

In light of the potentially aggressive collection tactics employed by debt buying companies, Mertola v. Santos breathes life back into the statute of limitations as applied to credit card debt, making the application clear and well-defined. Moreover, it still respects the creditors’ desire for protection should borrowers default; after all, lenders need the opportunity to pursue the money owed them, as long as it falls within the dictated time limit.

As always, consult a lawyer if you have questions about the statute of limitations on debt collection, especially if you’re considering or have filed for bankruptcy, or if a creditor is attempting to collect a potentially time-barred debt. The statutes vary depending on the kind of debt, and, as is evident by this case, the nuances can change with new court rulings. If you have any questions, contact the debt relief attorneys at Perez Law Group, PLLC, today: (602) 730-7100.