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Key takeaways
- Each state has a different statute of limitations on car repossession debt, including auto loans, with most ranging from three to six years.
- After the statute of limitations has passed on your debt, debtors and collectors can still contact you. However, they can no longer bring (or threaten to bring) legal action in an effort to collect the debt.
- Even if the statute of limitations has passed, you still technically owe any outstanding loans. Non-payment can harm your credit.
Each state has a statute of limitations on debt collection, so if you made the last payment on your debt before a certain time, the lender or debt collector may not be able to sue you in order to make you pay.
If your vehicle has been repossessed or you gave it up voluntarily, you may still be responsible for a deficiency payment, or the amount you owe if the sale price is less than the value of your car.
What is the statute of limitations on car loans?
All debts, including car loans, fall under a statute of limitations. This statute varies based on the type of debt and from state to state. The statute of limitations on car repossession starts at the last payment date. After the statute of limitations on a debt passes, the debt becomes time-barred, and the collection agency can no longer sue you for payment.
Each state has different statutes of limitations. According to the Consumer Financial Protection Bureau (CFPB), these typically range from three to six years, but some states have statutes of limitations that last longer. You can find your state’s specific statute of limitations on auto loan debt and repossession through its court office.
What happens after it passes?
There are multiple regulations regarding debt collection, including a regulation that “a debt collector must not bring or threaten to bring a legal action against a consumer to collect a time-barred debt.”
Even if the limitation has passed, the collection agency may contact you, but it cannot sue you for nonpayment. You can send a certified letter demanding that collection calls stop, but you will still technically owe the debt.
Nonpayment will affect your credit score. Even after the window for legal repossession passes, debt remains on your credit report until after the credit reporting time limit. This is typically seven years, per the Fair Credit Reporting Act.
Bankrate insight
Can auto loan collections pursue you after repossession?
When your car is repossessed or you give it up voluntarily, the lender may ask you to pay a deficiency balance. A deficiency balance covers the difference between your debt and the car’s value. If your car is repossessed, the deficiency balance is determined by the difference between the amount the creditor sells it for and what you owe.
The lender has a right to collect this deficiency balance. If you do not pay it, the lender may take further action. It can sell your debt to a collection agency, and you may have a lawsuit filed against you, resulting in wage garnishment or a lien on your other property.
If you cannot pay the deficiency balance on your car debt, your best bet is to talk to the lender as soon as possible. They may work with you to negotiate your debt or set up a payment plan.
Other reasons a lender might not be able to collect
While a lender has the right to collect a deficiency payment on a car loan that is within the statute of limitations, there are a few cases when it is not permitted.
You may not need to pay if:
- There are defects in the loan papers that don’t allow for a deficiency payment to be collected.
- The creditor didn’t provide the legally required written notices to try to collect your debt.
- The creditor didn’t sell your car in an honest and fair way.
- The creditor didn’t sell the car at all.
- You filed for bankruptcy.
If you think you might not need to pay the deficiency balance, consult a lawyer for legal advice.
In addition, many car manufacturers and dealers offered payment relief as borrowers struggled to manage their auto loans during the coronavirus pandemic, including the ability to defer payments. While these programs have largely ended, it may be worth contacting your lender to ask if any relief is available.
Be sure to watch out for scams that offer relief on auto loans in order to steal your information.
Bottom line
If you haven’t defaulted yet, consider refinancing your auto loan to help make monthly payments more affordable. But if you have missed multiple payments or defaulted, know that every car loan has a statute of limitations on how long you are responsible for the debt and when repossession can take place.
When considering your debt payment, make sure you know all the facts. Find advice on your car loan and legal resources through the Consumer Financial Protection Bureau, and always consult legal help if needed.
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