Debts don't last forever. Even if you never pay the money, California, like other states, imposes a statute of limitations on creditors. If the time limit expires before the creditor takes any legal action against you, the debt becomes "time barred" and uncollectable. The exact time limit depends on the details of the debt.
California Limitations
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California law breaks debt down into four categories:
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Written contracts
Any contract or debt "founded upon an instrument in writing," in the words of California law, comes with a four-year statute of limitations. If the debt was a one-time payment, the clock starts kicking once the transaction is made. With an open account — such as utility bills or credit-card payments — the four years begins when you last made a payment to the account.
The law specifically includes leases in this category. The countdown begins either when you breach the lease or when the landlord evicts you from the property, whichever event is earlier.
Oral contracts
If all the creditor has is your spoken promise to pay the money back, the promise is legally binding. The creditor has much less time to prove his case, though. After two years, the debt becomes unenforceable.
Debts resulting from injury or property damage.
The creditor or collection agency has three years to collect if you're liable for damaging someone's property. It's only two years if the debt arises from injury to a person.
The Taxman Cometh
Income taxes are a whole different story. The California Franchise Tax Board has 20 years to collect on back taxes. That's actually more generous than the 10 years federal law gives the IRS.
If you pay your taxes on time, things are better. The FTB only has four years to audit your return and request more taxes for that year. This doesn't apply if you submit a fraudulent return, or if you understate your income by 25 percent or more — in that case, there's no time limit.. The FTB only has to begin its audit within four years — if it starts after 3 1/2 years and doesn't finish for another 12 months, you're still vulnerable.
Fair Debt Buying
It's perfectly legal for a creditor or collection agency to ask you to pay a time-barred debt. In California, up until 2014, if you didn't know the statute of limitations protected you, the person demanding your money had no obligation to say so.
The Fair Debt Buying Practices Act changes that, at least for debt collectors rather than original creditors. If the debt is time-barred, any debt collector who calls you for money has to tell you the statute of limitations has expired and she's unable to sue you. If the debt is so old that it doesn't show up on credit reports — seven years for most debts — the collector also must tell you that non-payment won't go on your credit report. There are several other restrictions, intended to rein in the more unethical collectors.