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Seventh Circuit finds that Collection on Time-Barred Debt Violates FDCPA

Posted By USFN, Tuesday, December 12, 2017
Updated: Wednesday, November 22, 2017

December 12, 2017

by William (Nick) Foshag
Gray & Associates, L.L.P. – USFN Member (Wisconsin)

Earlier this year, the Seventh Circuit Court of Appeals held that a debt collector’s attempts to collect on a debt that was time-barred by the statute of limitations violated the federal Fair Debt Collection Practices Act (FDCPA). [Pantoja v. Portfolio Recovery Associates, LLC, (7th Cir. Mar. 29, 2017). [See also McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014).]

The underlying debt in Pantoja was governed by Illinois law; the Seventh Circuit is comprised of Illinois, Indiana, and Wisconsin.

In Pantoja, the Seventh Circuit found the debt collector’s letter deceptive or misleading under 15 U.S.C. 1692e since it did not explicitly inform the consumer that the collector could not sue on the time‐barred debt. Further, the dunning letter did not explicitly inform the consumer that a partial payment on the debt could restart the clock on the expired statute of limitations.i 

Applicability to Wisconsin Foreclosure Actions
As in many states, the statute of limitations in Wisconsin to enforce a debt under a written contract is six years. [Wis. Stat. § 893.43.] Therefore a foreclosure action including a claim for deficiency, or a separate action upon the note for a money judgment, must be initiated within six years of the default upon which the action is based (the last missed payment). [CLL Assoc. Ltd. Partnership v. Arrowhead Pac. Corp., 174 Wis. 2d 604, 609 (1993).] A foreclosure action without a claim for a deficiency, on the other hand, could arguably be initiated in Wisconsin beyond the six-year period, as the Wisconsin Supreme Court has held that, “the extinguishment of an obligation by the running of the statute of limitations does not prevent the foreclosure of a mortgage given to secure the debt.” [First National Bank of Madison v. Kolbeck, 247 Wis. 462, 465, 19 N.W.2d 908, 909 (Wis. 1945).]

Despite the possibility of pursuing foreclosure without deficiency beyond the six-year period, it must be emphasized that foreclosure actions in Wisconsin (and elsewhere) are proceedings in equity and any action should therefore be initiated within a “reasonable time” after the default and notice of acceleration letter has expired.ii 

Closing Words
The Pantoja decision does not address the possibility or impact of advancing the due date and waiving the installments beyond limitations period. Rather, the decision more narrowly “concerns the practice of attempting to collect an old consumer debt that is clearly unenforceable under the applicable statute of limitations.” In this scenario, the best outcome is for a creditor to secure a payment agreement with the debtor that would reset the statute of limitations. In attempting to do so, it is imperative that a debt collector provide clear disclosures about the time-barred nature of the debt, or the possibility that the debt is time-barred, in order to avoid possible violations of the FDCPA. The Seventh Circuit did not provide draft language for this purpose; however, Pantoja states that such disclosures must be “clear, accessible, and unambiguous to the unsophisticated consumer.”


i If a partial payment is made before the expiration of the limitations period, that payment tolls the statute and sets it running from the date of the payment made. St. Mary’s Hosp. v. Tarkenton, 103 Wis. 2d 422 (Wis. Ct. App. 1981).
ii Laches is an equitable defense to an action based on an unreasonable delay in bringing suit under circumstances that prejudice the opposing party. Suburban Motors, Inc. v. Forester, 134 Wis. 2d 183, 187, 396 N.W.2d 351 (Ct. App. 1986).

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