Statute of Limitations on Debt in California: What Every Business Should Know

It’s said that time is money. But in California, it’s more than just that. It’s law. For every unpaid account or outstanding balance, a legal clock ticks in the background, known as the “statute of limitations”.

Once that clock runs out, the debt becomes “time-barred,” meaning the collector or creditor can no longer sue to recover it. For businesses based in California, understanding these timelines is crucial. In addition to compliance, this helps maintain lawful and efficient recovery practices.

In this blog, we break down everything businesses need to know about the statute of limitations on debt in California, including how long you can pursue collections, what pauses or restarts the clock, and how tools like Recuvery help businesses stay lawful while boosting their cash flow.

What Is the Statute of Limitations on Debt in California?

The statute of limitations is the maximum time a creditor has to file a lawsuit to recover an unpaid debt. In simpler terms, it determines how long a debt remains legally enforceable in court. Once this time span is over, the debt remains, but the creditor can no longer sue the debtor to recover it.

This concept plays an important role in balancing rights on both sides:

• Creditors should act responsibly and promptly when collecting overdue payments.

• Debtors should stay protected from lawsuits involving unverified, forgotten, or old debts.

For example, suppose your business provides services under a written contract, and the customer fails to pay, you have a specific number of years to file a lawsuit under California law. If you wait too long, whether due to operational delays, inconsistent follow-ups, or poor recordkeeping, the legal system prohibits enforcement after the limitation period expires.

Statute of Limitations on Debt in California: How Long Does It Last?

As per California’s Code of Civil Procedure § 337, the statute of limitations on most business and customer debts, especially those based on written contracts, is four years. This gives the creditor four years from the date of delinquency (often referred to as the “date of default”) to file a lawsuit.

This timeline applies to scenarios like:

• Unpaid invoices under a written agreement

• Personal loans, credit cards, auto loans, and medical bills

• Vendor-client payment disputes

• Past-due service contracts

• Business credit accounts documented in writing

When a debt arises from an oral contract, the statute of limitations is typically two years.

What Can Restart the Debt Statute of Limitations in California?

Even after a debt becomes old, certain actions by the debtor can restart or revive the statute of limitations in California. This is critical for businesses as it gives them a fresh four-year period to pursue legal action and restores their ability to recover long-overdue amounts legally.

Here’s what you need to know about what restarts this statute in California:

• Making a partial payment: Even a partial payment made by your customer can reset the clock.

• A written acknowledgement of the debt: If the debtor sends or signs a written confirmation that they owe you the debt, the limitation period restarts.

• A new written promise to pay: Any signed communication or agreement clearly states the debtor’s intent to repay.

• Negotiated repayment plans: If the customer or debtor agrees to new repayment terms, a fresh limitation period starts.

It’s important to note that verbal acknowledgements do not restart the clock in California. The law requires a payment transaction or a written confirmation to revive the statute.

What Can Pause the Statute of Limitations for Debt in California?

Jay Fleischman, the Managing Attorney at Money Wise Law, explains how certain circumstances can pause or toll the statute of limitations in the state:

• Absence from California: According to the Code of Civil Procedure, a debtor or customer being out of state for any period tolls the statute of limitations clock.

• Bankruptcy: If the debtor is going through bankruptcy proceedings and the case is active, the statute may be tolled.

• Voluntary agreement: Tolling can also be enforced if an agreement is signed between the debtor and creditor.

The U.S. Law also enforces equitable tolling of the statute, allowing courts to extend it in cases of fraud, interference, or other unforeseen circumstances.

California Statute of Limitations on Debt — Key Timelines

Before diving deeper into compliance or recovery strategies, California businesses should understand how the state recognizes and categorizes the different kinds of debts. Each category carries its own legal timeline. 

The table below outlines the distinctions clearly, helping businesses align their collection efforts with the correct legal window.

Debt Type	Statute of Limitations	Legal Reference / Notes
Written Contracts (B2B agreements, invoices, written service contracts)	4 years	Cal. Code Civ. Proc. §337 — applies to most business debts documented in writing.
Open Accounts / Open Book Accounts (credit cards, revolving credit, vendor charge accounts)	4 years	Cal. Code Civ. Proc. §337
Oral Contracts (verbal agreements without written documentation)	2 years	Cal. Code Civ. Proc. §339
Promissory Notes (written promises to pay, including many business loan notes)	4 years (general rule)	Falls under written contracts unless the note specifies different terms.

Important points:

• The limitation period begins when the debt becomes delinquent, not when the agreement was signed.

• “Open accounts” follow the 4-year statute only when documented as an open book account, which most business credit accounts are.

• Permissory notes may vary depending on maturity date and payment terms, but four years is the standard period unless stated otherwise.

Statute of Limitations on Credit Card Debt (State of California)

Credit card managements fall under the category of open accounts; therefore, California law treats them similarly to written contracts when determining how long your business has to pursue recovery through the courts.

Lasting for four years, the statute of limitations on credit card debt in California begins on the date of the last payment, last charge, or last written acknowledgement. This makes account activity tracking and accurate record keeping a crucial business operation.

After the statute period, the credit card debt may still be reflected in internal records or credit reporting systems, but the creditor cannot use litigation or threaten litigation to enforce it. 

Why the Credit Card Statute of Limitations (California) Matters for Businesses

If your business offers credit-based services, understanding the statutory timelines influences everything. Here are the key considerations:

• The clock starts at the date of the last charge or payment, making consistent account monitoring essential.

• If you are attempting to collect after the expiration date of the statute, the communication with the customer must be strictly non-deceptive and non-threatening.

• If a debtor sends you a written acknowledgment, agrees to a new payment plan, or makes a partial payment, the four-year countdown may begin again.

• If your business relies on open accounts, you should maintain proper documentation, including invoice histories, ledger entries, payment records, etc.

The credit card statute of limitations framework has been designed to promote timely collection practices and, therefore, streamline recovery strategies, reduce legal dependence, and adopt more proactive management practices.

Business Compliance Checklist for Managing Debt in California as per the Statute of Limitations

➮ Track the Accrual Date Accurately

• Keep a record of the last payment or written acknowledgement.

• Ensure that all your collection systems reflect the correct “clock start” date for accurate calculation of statute of limitations.

➮ Maintain Detailed Account Information

• Keep copies of contracts, invoices, payment confirmations, communication logs, etc. 

• Store the entries in a time-stamped system for audit and legal purposes.

➮ Monitor the Four-Year Limit Proactively

• Set automated alerts when the accounts reach 24, 36, and 48 months of inactivity.

• Review accounts that are about to expire to determine whether litigation remains a viable option.

➮ Avoid Any Threat of Litigation After Expiration

• If the debt becomes time-barred, ensure all your communication with the customer avoids threats of lawsuit, court action, and misleading statements about enforceability.

• Train your teams to use approved, compliant communication language.

➮ Verify Any Activity That May Restart the Clock

• Confirm in writing if the debtor makes a partial payment, promises to pay, or signs a written acknowledgment.

• Reevaluate the statute-of-limitations timeline immediately after such an event.

➮ Ensure Collection Messaging Meets Legal Requirements

• Ensure your business communicates with customers in a way that complies with the Rosenthal Fair Debt Collection Practices Act (RFDCPA) and the Fair Debt Collection Practices Act (FDCPA).

• Avoid collection tactics that involve harassment, misrepresentation, and aggression. Resort to polite reminders using appropriate tools such as Recuvery.

➮ Use Secure, Compliant Software for Recovery

• Implement tools that automate reminders, manage overdue accounts, and leverage advanced collection technology to support efficient recovery.

• Look for recovery tools that respect your customers and your brand.

➮ Audit Collection Processes Regularly

• Conduct timely compliance reviews of both delinquent and active accounts.

• Update your internal policies based on changes in California debt laws or legal precedents.

How Recuvery Helps Businesses Stay Compliant and Efficient

For businesses based in California, manual debt collection practices can lead to risky follow-ups and missed deadlines, especially when the statute of limitations is involved. Automation helps you contact your customers at the appropriate time and avoid actions that can create compliance issues.

Here’s why you should think about partnering with Recuvery for efficient and legally safe debt recovery:

What Recuvery Helps With	How It Supports Your Business
Set Up Is Simple	You can upload or sync overdue accounts in just a few clicks through an intuitive software.
Automated, Polite Reminders	Recuvery sends branded, polite multi-channel messages to your customers at the right time, so you reach them before the statute expires.
Flexible Payment Plans	Your customers can choose a repayment plan that suits their budgets, increasing the chances of debt recovery without any pressure.
Real-Time Tracking	You have access to all updates, including who has paid, who is late, who is on a payment plan, etc.
Built-In Compliance	Each reminder follows debt collection rules, ensuring your communication remains compliant—especially helpful if accounts get older.
Credit Reporting Incentives	Each payment made by your customers is reported to the credit bureaus, giving them a positive reason to pay.

Why this works well for statute-of-limitations compliance:

Recuvery helps your business stay organized and follow up consistently. These steps reduce the risk of contacting a customer after their debt becomes time-barred.

Bringing It All Together

The statute of limitations on debt in California affects every stage of your recovery process, from how you communicate to when you follow up. While the rules may seem complex, the main idea is simple: timely action protects both your business operations and customer relationships. By staying aware of the timelines and using modern automation to your advantage, you can recover more while being customer-friendly and legally compliant.

Frequently Asked Questions

1. What Is the California Statute of Limitations for Debt?

For most business-related debts, the statute of limitations in California is:

• 4 years for written contracts and open-book accounts
• 2 years for oral agreements

This determines how long a business has to sue for unpaid balances.

2. How Long Can Debt Collectors Try To Collect in California?

Debt collectors/businesses can continue to request payment from debtors/customers indefinitely, even after the statute of limitations expires, but the communication has to be non-threatening and non-deceptive. However, they can not file a lawsuit once the statute ends.

3. Does the Statute of Limitations Erase the Debt?

No, the statute does not erase or cancel the debt. The amount is still owed, and the business may continue to request payment.

4. How Do I Know if a Debt Is Time-Barred?

A debt may be time-barred if the legal period for filing a case has passed. To determine this, check:

• The date of the last payment
• The date of default, or
• The last written acknowledgment from the customer

If more than the allowed time has passed, the debt may be outside the enforceable window.