The Statute of Limitations on Car Loans

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The statute of limitations for collecting a car loan varies by state and debt type. The state in which you live in may allow your creditor ample time to compel you to repay your debt. If your state only has a small window where a creditor may legally collect the debt, it's more likely you will lose your vehicle to repossession.

Debt Classification

  • States across the country may consider a car loan a written contract for debt collection purposes. A state may also consider a car loan a promissory note so it's important to check your loan documents to determine which type of loan you have. A promissory note is a type of written contract a lender uses for secured debts where the lender has collateral to seize in the event of default. It is more likely your car loan is a promissory note if you have a schedule of payments and a fixed interest rate spelled out on your loan document. The type of debt decides how long the statute of limitations runs in your state. The statute dictates how long your creditor has to sue you in court to recoup the remaining portion of your car loan.

Statute of Limitations

  • The statute of limitations for written contracts varies from three to 10 years depending on the state in which you live. The statute of limitations for promissory notes is longer, ranging from as little as three years to as long as 15 years. A creditor may still sue you even after this statute expires but you gain a legitimate defense in court. You may make the court aware of the time-barred status of the debt. This causes the judge presiding over the case to dismiss the suit. The judge may also bar your creditor from suing you for your car loan again.

Repossession of Car

  • A car loan rarely exceeds the statute of limitations because your creditor may repossess your automobile if you don't pay on your loan. Your written contract or promissory note spells out your creditor's rights of repossession. Typically, the newer the car loan, the more likely a creditor is to repossess the automobile. A creditor may sell the automobile to a new buyer if you cannot bring your auto loan current within a reasonable amount of time. If the purchase amount does not cover the balance of your previous auto loan, your creditor may sue you in civil court for the difference.

Continued Collection Practices

  • Even if the statute of limitations on your auto loan expires, collection practices still continue. Your creditor may still contact you by phone or through the mail in an attempt to recoup your debt. A negative notation on your credit report may remain for up to seven years if your loan is delinquent or up to 10 years if the notation is a vehicle repossession. It is illegal for your creditor to "restart" the clock on the statute of limitations by re-aging the debt to a newer delinquency date or by selling the debt to a collection agency. Contact a branch office of the Federal Trade Commission or the visit the department's website to file a claim if you suspect a creditor is attempting to re-age a debt.

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