If you default on an auto loan, your creditor has the right to take legal action against you, such as filing a lawsuit or repossessing the vehicle. Most states have statute of limitations laws limiting the amount of time lenders have to file a lawsuit against a debtor for an unpaid loan. In Texas, that statute of limitations is four years. Creditors may take other action against you even if the statute of limitations has expired.
As of 2011, Texas law allows creditors to sue debtors for defaulting on the debt for up to four years after the default occurs. Note that the statute of limitations begins on the date of default, not the date the loan was taken out. Thus, if you default on your auto loan two years after taking it out, your lender has four years to sue you to recover the debt, and the two years of payments you have made do not count towards the statute of limitations.
Auto loans are considered contracts under Texas law; thus, the statute of limitations for contract debts applies. In Texas' case, this is insignificant in terms of statute of limitations law because Texas enforces the same statute of limitations of four years regardless of the type of debt as of 2011. However, if Texas law were to change so that contract debts had a different statute of limitations than other types of debt, Texas courts would use the contract debt statute of limitations.
Conflict of Contracts
If a debtor purchases a vehicle in a different state and fails to make payments after moving to Texas, the Texas courts must determine which state's statute of limitations applies. Bills.com states that courts use the "significant relationship" test to determine which statute of limitations to follow. Texas courts must use the statute of limitations for whichever state has more of a relationship to the debt. The court must look at where the vehicle was purchased and where the debtor made the majority of payments.
Statute of limitations law refers only to the length of time a creditor has to bring a lawsuit against a debtor for failure to pay. Creditors can still take other collection action against a debtor who has not paid an auto loan even after the statute of limitations expires. For example, the auto lender can still report negative information to the credit bureaus or contact the debtor regarding repayment. Auto loans are secured debts, so lenders can repossess the auto if the debtor defaults on his debt, and generally will do so long before the statute of limitations runs out.