Legal Memorandum: Statute of Limitations in Collecting a Debt

Issue: Under U.S. bankruptcy law, when are a creditor’s claims for unpaid amounts time-barred by a statute of limitations?

Minnesota Statute § 541.05 provides a six-year statute of limitations in collecting a debt; however, a cause of action*FN1 to collect a debt accrues “when the creditor accelerates the debt, not when the default or other event on which acceleration is based occurs.”  See 16 Causes of Action 391, Cause of Action to Accelerate Maturity of Debt § 23 (2012); United States v. Feterl, 849 F.2d 354 (8^th Cir. 1998).  In the Feterl case, for instance, the court held that a claim on a guaranty of a loan made by the Economic Development Administration (EDA) did not accrue until the EDA took affirmative action to make it known to the borrower that the EDA had exercised its option to accelerate.  Id. at 356-57.

FOOTNOTES

*FN1 The terms “cause of action” and “claim” are often used interchangeably.  See, e.g., Comsat Corp. v. St. Paul Mercury Ins. Co., No. Civ. 97–2236, 1998 U.S. Dist. LEXIS 2916, *9, (D. Minn. Mar. 6, 1998) (Alsop, J.) (quoting Rhodes v. Jones, 351 F.2d 884, 886-87 (8^th Cir. 1965)) (stating that “‘[c]ause of action’ and ‘claim’ are loosely defined terms, and have been interpreted as interchangeable by the Eighth Circuit”; “[a] ’cause of action’ is a situation or state of facts which entitles a party to sustain an action and gives him the right to seek judicial interference in his behalf,” and “the word ‘claim’ denotes the same […]