Statute Of Limitations On Car Repossession Debt In US
Statute Of Limitations On Car Repossession Debt In US. Having an old unpaid car? You might be wondering if you still have to pay it. Each state in the US has a different statute of limitations on debts, including auto loans, mostly ranging from three to six years.
Most debts, including car loans, have a statute of limitations for court filings. If you get too far behind on your car loan, it is in danger of being repossessed. The fallout from repossession, both for your current finances and your future ones, can be devastating.
What Is Repossession?
When you take out a secured loan for an item, like a car, the item is the security. In other words, if you don’t pay the loan according to the terms agreed to, the lender takes the item because your loan is in default. That’s why, when you have a car loan, the lender has possession of your title until the loan is paid off. That’s when the car is truly yours.
What Is The Statute Of Limitations On Car Repossession?
All debts, including car loans, they all fall under a statute of limitations. This statute varies based on the type of debt and from state to state. The statute of limitations clock starts ticking 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.
To summarize, statute of limitations means the period prescribed by applicable law for bringing a legal action against the consumer to collect a debt.
Types of Repossession
There are two types of vehicle repossession: voluntary and involuntary. Both are similar in that the lender takes back your car because you can’t pay, and then sells or auctions the car, with you responsible for the balance left over after the sale (which is called a deficiency balance).
1. Involuntary repossession.
Involuntary repossession means that the lender is seizing your vehicle because you are behind on payments. You likely won’t know when this will happen – the repo man will show up and take your car. You will be charged fees by both the lender and repossession company.
2. Voluntary repossession.
Voluntary repossession means that you have let your lender know you can no longer afford to pay, and reached an agreement to give the vehicle back. One advantage to voluntary repossession is that you can make provisions for when you will give up the car and not be left suddenly high and dry. You also will pay less in fees, including the impound lot fee and other costs that come with an involuntary repossession.
What happens after Statute Of Limitations passes?
According to the US 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. Note that nonpayment will affect your credit score. Even after the statute of limitations window passes, debt remains on your credit report until after the credit reporting time limit
How does a vehicle repossession works?
When you lease a vehicle or buy it with financing, part of your car loan agreement is that you provide consent to make the monthly payments. If you don’t hold up your end of the bargain, the written contract allows for the car dealer or lender to repossess the vehicle. A car loan can technically be considered delinquent even if you pay late by only one day.
After the bank or repossession agency has taken the repossessed vehicle, they can keep it or sell it to settle the debt owed. Typically the lender will choose to sell the vehicle in either a public auction or private sale in a “commercially reasonable manner.” That basically means they don’t have to try for the highest price possible but they should follow basic, standard sales practices to get a reasonable price for the car.
How can I avoid repossession?
If you find yourself unable to make your monthly payments, the first thing you should do is talk to your lender. You may be able to come to some kind of agreement to avoid repossession altogether. Depending on your car lender, they probably don’t want to go through the hassle of repossessing your car and selling it to recover their money.
1. Refinancing.
Refinancing your car loan may give you a lower interest rate and/or a longer time to pay back the debt, which could give you smaller, more manageable car payments. Keep in mind, though, that lengthening the loan term will also mean you end up paying more money in interest over the life of the loan.
2. Sell the vehicle.
If you can afford a lower monthly payment, consider selling the vehicle or returning the lease early and getting a less expensive vehicle instead. Just keep in mind that there may be costs related to early payment of a loan or early termination of a lease.
3. Reinstating your loan agreement.
If you can manage it, this is your best possible option to avoid repossession. Reinstating the loan agreement means you pay back all of the missed payments and any applicable late fees so that you become current on the loan. You should check your loan papers to see if this is a provision in your contract.
4. Request forbearance or loan modification.
Depending on the options your lender provides, you may be able to get a short-term forbearance on monthly payments or a long-term modification to your monthly payments.
5. Consider a voluntary surrender.
If you’re notified in advance of a repossession and can’t find a way to cover your outstanding balance, consider voluntarily turning the car over to your lender. Voluntarily surrendering your car could help you avoid the stress and costs of repossession, as well as some of the negative repercussions for your credit.
6. Get caught up as quickly as possible.
If you’ve already missed a payment or two, make it a priority to get current on the loan as quickly as possible. You may consider asking loved ones to help or seeking financial assistance for other areas of your budget to free up some cash for your obligation.
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:
- The creditor didn’t sell your car in an honest and fair way.
- The creditor didn’t sell the car at all.
- There are defects in the loan papers that don’t allow for a deficiency payment to be collected.
- You filed for bankruptcy.
- The creditor didn’t provide the legally required written notices to try to collect your debt.
How Long Does Repossession Stay on Your Credit?
Repossessions remain on your credit reports for seven years from the date you stopped paying your loan. Because your payment history is the most important factor in your FICO® Score☉ , late payments, default and repossession can damage your credit score significantly, even if you ultimately surrender the car voluntarily. If the lender sends the deficiency balance to collections, the collection account will also show up on your credit reports, wreaking further havoc on your credit profile. As a result, repossession can make it difficult to get approved for credit in the future.
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