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San Francisco Bankruptcy Law Blog

California's statute of limitations on credit card debt

Residents of California enjoy the protection of a statute of limitations against legal actions to collect a credit card debt after a certain number of years have passed. This is meant to prevent creditors from pursuing unfair cases in which too much time has gone by for the accused debtor to properly be able to assemble the evidence for their defense.

State law sets the expiration date for debt at 4 years. After that point the credit card agency may still attempt to collect on the debt, so long as they do not violate any state or federal statutes governing creditor harassment. However, they may not sue to collect upon it and any such case should be dismissed upon the revelation of the age of the debt.

An overview of corporate bankruptcy

When a public company in California files for bankruptcy, it may do so under either Chapter 7 or Chapter 11 of the bankruptcy code. If it files for Chapter 7 bankruptcy, its assets will be liquidated to repay as many creditors as possible. If it files under Chapter 11, the company's debts will be reorganized and the current management team may continue running the company.

However, a company undergoing Chapter 11 bankruptcy must have any major business decisions approved by a court. Generally, secured creditors get paid back first as they took the least amount of risk. Bondholders are paid after that because there is usually an agreement to return principal and pay interest on the debt. Unsecured creditors and stockholders are generally the last to be paid and may not see their money back.

The IRS views forgiven debt as income

People who think that their financial issues are behind them once their debt has been forgiven need to think again. The Internal Revenue Service often sees forgiven debt as income and wants its share of the action. Any California resident who has more than $600 in credit debt forgiven needs to include that as "other income" on his or her tax return.

Getting debt relief through debt settlement may get the collection agencies to stop calling, but it opens up other issues, like having to declare the debt forgiveness as income. Residents who receive a 1099-C form in the mail have had more than $600 in debt forgiven by a creditor and must count that as annual income. The IRS says the number of 1099-C forms filed with the government agency increased five-fold from 2003 to 2012, and that figure is only expected to rise through 2021.

Addressing potential wage garnishment from a paycheck

A California resident may wonder about the best approach to avoiding wages being withheld from a paycheck to cover an unpaid debt. It is important to note that ignoring a debt may lead to a situation in which garnishment is ordered by a court. However, preventive strategies may enable an individual to keep things from escalating to that point.

One of the most important steps to consider in dealing with a debt can be discussing the issue as soon as it becomes apparent that a payment deadline cannot be met. In some cases, it may be possible to arrive at a manageable payment plan. In cases involving payments that have already been missed, a creditor might even be willing to negotiate a settlement in which a lesser amount can be paid in a lump sum. In other cases, it may be possible to obtain debt relief by negotiating a longer payment period with lower overall payments. Creditors may be willing to work with an individual if they realize that bankruptcy is the alternative, a situation that can often result in little or no recovery of an outstanding amount.

The number of people with collections accounts remains steady

If you have consumer debt that has been sent to collections, you are not alone. Seriously…it may sound cliché, but you are literally (and figuratively) not alone. According to a recent report, more than a third of all adult Americans have some type of debt that is in collections.

The report highlighted a study conducted by the Urban Institute, and the types of debt subject to collections were as diverse as the people who were responsible for the debts. Aside from the credit card debt, past due obligations included past-due gym memberships, unpaid cell phone contracts, and hospital bills were common culprits. 

Easy steps to create an emergency fund

There are countless people in debt because of emergencies that have morphed into financial crises. Whether it is a medical emergency or having to deal with unexpected housing repairs, financial trouble occurs when a person incurs debt responding to the emergency that cannot be readily paid back.

Because of this possibility, it is helpful to protect yourself from financial calamities by having an emergency fund. But if you are living from check to check each month, it may not seem realistic to create such a fund. Nevertheless, there are ways to create an emergency fund without relying on credit cards to do so. This post will highlight them.

Debt collectors using Facebook to get their way


Many people would agree that debt collectors are the bane of the universe. They call, write letters and generally harass people who tend not to have the money to pay their debts. If the phone calls and letters were not enough, some debt collectors may turn to social media to get in touch with debtors.

Indeed, debt collectors can use social media to locate people and to see if they have any assets that could be liquidated to pay debts. However there are some unscrupulous firms who use it as another means of contacting people. This tactic can raise a number of issues; especially if the debtor has not given their permission to be contacted in this manner. 

Signs that financial ruin could be near

For most people who are seeking bankruptcy protection, as well as those who are seriously considering it, they know that they have problems that have them teetering on the verge of financial ruin. For countless others who have not reached this point, they unfortunately may not know that their spending habits have them headed in the wrong direction.

Because of this, we find it prudent to identify a number of habits highlighted by that can lead to financial turmoil.

Garnishments still affecting consumers

It’s no secret that the economy is doing better, even if it is incrementally better each month. The benefits can be seen in monthly job reports and the increase of the stock market, which reached a record high earlier this month. Nevertheless, there are still millions of Amercians who are still struggling despite finding better jobs and working diligently to pay off debt.

The problem is likely linked to garnishments. According to a joint report between National Public Radio (NPR) and ProPublica revealed that collectors and creditors are collecting on judgments established after the last recession decimated incomes. 

Additional ways to save money during the holidays

While you may be complaining about seeing Halloween costumes and candy displays in stores, just wait until November 1. Almost magically, Halloween displays will disappear and the holiday season will be in full swing.

Who waits till Black Friday anymore? Certainly not retailers. It is almost like we are lucky that kids love Halloween candy as much as retailers like money. If that wasn’t the case, the holiday season would begin promptly after Labor Day; 80 degree weather and all. But make no mistake, retailers are perfecting their game plans as they watch parents and kids go Halloween shopping. Since they are plotting, so should you.  Beginning with this post, we will periodically give holiday shopping tips so that consumers don’t get themselves into trouble.