Can You Avoid a Debt Collection Counterclaim by Waiting?

A gavel with a dollar sign to represent debt collection counterclaim.Thought you let enough time pass to avoid a debt collection counterclaim in your lawsuit? Think again.

Every case has a shelf-life — known as the statute of limitations — the time in which you can bring a case to court. The type of case you file will determine the statute of limitations. In New York, the sale of goods covered under the Uniform Commercial Code is four years. For services rendered — both professional and non-professional — the limit is six years.

There are, however, situations in which the statute of limitations can be extended, or tolled, in New York.

Debt Collection Counterclaims

When you file your case, the defendant has a right to defend themselves. Their answer may include their defense, but in some circumstances may also include a counterclaim. Often a counterclaim is filed by the defendant as a ploy to persuade the creditor to negotiate forgoing collection of aged or older receivables in exchange for the debtor dropping the counterclaim — even if the counterclaim is a sham.

In some industries — mainly professional services — a creditor may think to wait to file a lawsuit until the debtor’s statute of limitations to file an action for malpractice expires. This way, when the creditor files an action to recover unpaid fees, the client can not file a malpractice counterclaim. Malpractice counterclaims involve reporting the claim to the professional liability carrier, which would incur additional costs, potentially larger deductibles, increased insurance rates, and possibly abandoning or offsetting the creditor’s claims for unpaid fees.

Is Waiting a Viable Option?

If a creditor has six years to bring an action for unpaid services, they may wait three years so the debtor cannot bring a potentially frivolous malpractice case. However, debtors can still file a counterclaim, even if the creditor waits. The courts will not allow the provider of services to simply wait out the statute of limitations. Even after the statute of limitations expires, once you initiate your case, your former client can raise a counterclaim.

The counterclaim is valid as an offset. Although the debtor cannot bring an action on its own, they can “revive” the counterclaim as a defense if you sue for services. The point of the statute is to make sure the creditor does not use the statute to avoid a valid defense to the action to enforce payment of fees.

New York Civil Practice and Rules s.203(d) permits a defendant to assert a counterclaim that might otherwise be barred. The creditor revives the debtor’s ability to allege the debt collection counterclaim but the claim can only be an offset to the amount demanded in the lawsuit.

If you’re wondering if you should begin the collection on your unpaid claim and what to expect, contact FFGN. We have the experience that pays.