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Statute of limitations on car debt: How long is too long?

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A line of cars positioned diagonally to the left
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If you have an old unpaid car, you may wonder if you still have to pay it. 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.

However, if your vehicle has been repossessed or you gave it up voluntarily, you may still be responsible for a deficiency payment. A deficiency payment is a payment you owe if the debt owed is greater than the value of your car. Your debt can be sold to collectors if you don’t make the deficiency payment.

What is the car debt statute of limitations?

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 clock on the statute of limitations starts ticking at the date of the last payment. 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 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 through its courts office.

What happens after it passes?

According to the Consumer Financial Protection Bureau, “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, though they can’t sue you for nonpayment. You can send them a certified letter demanding that they stop contacting you. However, you still technically owe the debt.

Nonpayment will affect your credit score. Even after the statute of limitations, debt remains on your credit report until after the credit reporting time limit has passed.

Be aware: You can “reset the clock” on the statute of limitations if you make a payment or enter a settlement for the debt. If you take those actions, remember that the countdown has reset.

Can a lender collect on a deficiency after repossession?

When your car gets repossessed, or you give it up voluntarily, the lender may ask you to pay a deficiency balance. A deficiency balance covers the difference between the debt you owe and the car’s value.

If your car is repossessed, it’s determined by the difference between the amount creditor sells it for and what you owed.

The lender has a right to collect this deficiency balance. If you don’t 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 can’t 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 they aren’t allowed to.

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, you may want to consult a lawyer for legal advice.

Many car manufacturers and dealers offered payment relief as a result of the coronavirus pandemic, including the ability to defer payments. In most cases, these programs have ceased, but it may be worth contacting your lender to ask if any relief is available.

Make sure to watch out for scams that offer relief on auto loans in order to steal your information.

The bottom line

Every car loan has a statute of limitations on how long you are responsible for the debt. 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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Written by
Emma Woodward
Contributing writer
Emma Woodward is a former contributor for Bankrate and a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet.
Edited by
Auto loans editor