What is the statute of limitations?
The statute of limitations restricts how much time someone has to file a lawsuit after an event.
For example, if you know someone stole your car, you may only have a certain number of years to file legal proceedings against them to get it back. The limit on the amount of time you have to sue them is known as the statute of limitations.
What is an auto loan deficiency?
When a borrower defaults on an auto loan, a lender can repossess the vehicle and sell it. Sometimes, the sale of the car doesn’t cover the amount remaining on the loan, leaving a leftover balance known as a deficiency.
Here’s an example of how a borrower can end up with an auto loan deficiency:
- A borrower takes out an auto loan for $30,000
- After a year, the borrower stops making payments, leaving an unpaid loan balance of $25,000
- The lender eventually repossessed the car and sells it for $22,000
- Since the loan balance was $25,000 but the car only sold for $22,000, there is now a deficiency of $3,000 that the borrower owes the lender ($25,000 loan balance – $22,000 sale = $3,000 deficiency balance)
Depending on state laws, a borrower with an auto loan deficiency is often still responsible for paying back some or all of the money they owe, even though they don’t own the car anymore.
How does the statute of limitations apply to auto loan deficiencies?
The statute of limitations applies to auto loan deficiencies by limiting the timeframe a lender or debt collector has to sue a borrower to recover a debt, which includes deficiencies. These laws protect a debtor (aka someone who owes someone else money) from a creditor (the person or organization who is owed the money) attempting to file a lawsuit to recover the deficiency balance after several years have passed.
How long does the statute of limitations last in your state?
Take a look at the table below to learn how long the statute of limitations lasts in your state.
| State/Territory | Statue of Limitations for Written Contracts |
|---|---|
| Alabama | 6 years |
| Alaska | 3 years |
| Arizona | 6 years |
| Arkansas | 5 years |
| California | 4 years |
| Colorado | 2–6 years (typically 6 for debt) |
| Connecticut | 6 years |
| Delaware | 3 years |
| Washington D.C. | 3 years |
| Florida | 5 years |
| Georgia | 6 years |
| Hawaii | 6 years |
| Idaho | 5 years |
| Illinois | 10 years |
| Indiana | 10 years |
| Iowa | 10 years |
| Kansas | 5 years |
| Kentucky | 10 years (15 for contracts signed prior to July 15, 2014) |
| Louisiana | 10 years |
| Maine | 6 years |
| Maryland | 3 years |
| Massachusetts | 6 years |
| Michigan | 6 years |
| Minnesota | 6 years |
| Mississippi | 3 years |
| Missouri | 5 years for debt |
| Montana | 8 years |
| Nebraska | 5 years |
| Nevada | 6 years |
| New Hampshire | 3 years |
| New Jersey | 6 years |
| New Mexico | 6 years |
| New York | 6 years |
| North Carolina | 3 years |
| North Dakota | 6 years |
| Ohio | 6 years |
| Oklahoma | 5 years |
| Oregon | 6 years |
| Pennsylvania | 4 years |
| Rhode Island | 10 years |
| South Carolina | 3 years |
| South Dakota | 6 years |
| Tennessee | 6 years |
| Texas | 4 years |
| Utah | 6 years |
| Vermont | 6 years |
| Virginia | 5 years |
| Washington | 6 years |
| West Virginia | 10 years |
| Wisconsin | 6 years |
| Wyoming | 10 years |
What happens if you don’t pay a deficiency balance?
If you don’t pay a deficiency balance (and the statute of limitations hasn’t passed), a lender or debt collection agency can file a lawsuit against you to collect the money you owe them. If the lender obtains a judgment against you, they can then garnish your wages or have your bank account frozen until you pay the balance.
When does the statute of limitations start on auto loan debt?
On auto loans and other debt, the statute of limitations typically begins when a borrower defaults on a loan. However, in some states, the statute of limitations begins on the date the most recent payment was made.
FAQs
Can a lender collect a deficiency balance after they repossess a car?
Depending on the state’s laws, a lender may be able to collect part or all of a deficiency balance after they repossess a car.
What are the limitations on how long a bank can collect on a car loan?
There aren’t usually any limitations on how long a bank can collect on a car loan. Though the statute of limitations restricts a creditor’s ability to sue or to threaten a debtor with a lawsuit, they can still contact you to try and get you to voluntarily pay your loan balance.
What happens when the debt statute of limitations ends?
When the debt statute of limitations ends, a lender or debt collection agency can try and get you to pay any money you owe them, but they can’t sue you to try and collect the debt.
How likely is it that a debt collector will take you to court?
The likelihood that a debt collector will take you to court over a balance you owe typically depends on how much money you owe. If the balance is only a few hundred dollars, it probably won’t be worth it for the lender to take you to court, but the odds will increase if you owe a larger amount.
Can debt collectors restart the clock on an old debt?
Debt collectors may be able to restart the clock on the statute of limitations if you make a partial payment or acknowledge in writing that a debt is yours and that it’s legitimate.
Am I able to pay my original lender instead of the collection agency?
Some collection agencies will permit you to pay your original lender instead of the collection company.
What is the 11-word phrase that can stop debt collectors?
The 11-word phrase that is supposed to stop debt collectors is “Please cease and desist all calls and contact with me immediately.” Despite this phrase being popularized as a solution for warding off pesky debt collectors, there are no magic words to stop debt collectors.
If you want to stop debt collectors from contacting you, you have to send a written letter to the debt collector. The Consumer Financial Protection Bureau (CFPB) website can help you deal with debt collectors and even offers sample letters you can send that will force debt collectors to stop communicating with you.
What is zombie debt?
Zombie debt refers to the return of debt that is past the statute of limitations, already paid off, or simply not owed. Nevertheless, some debt collection companies will attempt to recover these debts by contacting borrowers and may use scare tactics to try and get them to pay.
How can I deal with zombie debt collectors?
The best way to deal with zombie debt collectors is to find out if the debt and the collector are legitimate. While you can tell the debt collector to stop contacting you, if the debt is legitimate and the statute of limitations hasn’t passed, you may still owe the debt.
Here are some tips from the CFPB to help you verify if the debt and the collector are legitimate.
- Ask the collector for their name, the name of the company, and the company’s address and phone number
- Ask the lender how much money is owed, the name of the creditor, and how to verify the debt is actually yours
- Even if the debt is yours and you recognize it, tell the debt collector to send you written notice of the debt before negotiating or paying for any debt
- If the debt is old, check how long the statute of limitations is on the debt (you can also speak to an attorney if you’re unsure or just want the help of an experienced professional)
- Keep a record of all communication (letters, emails, texts, and even messages on social media)
Should I pay off a debt collection that’s 3 years old?
If you have a debt collection that’s 3 years old, you should still make every effort to pay it off. Paying your debts can help improve your credit score, and in the case of a 3-year-old debt collection, the statute of limitations may still apply, so it’s still possible you could get sued for it.
How can I get rid of a collection without paying?
Getting rid of a debt collection without paying is extremely difficult, but it may be possible by sending the lender a goodwill deletion letter asking for forgiveness or successfully disputing the collection.
Sources:
- Lane, S. (n.d.). Can car lender collect a deficiency after repo? Nolo.
- Consumer Financial Protection Bureau. (2017, January 25). What is a Statute of limitations on a debt?
- Federal Trade Commission. (2010). Fair Debt Collection Practices Act.
- Mass.gov. (2015, November 4). What is zombie debt?
- Michon, K. (2011, October 10). Debt scavengers and zombie debt. Nolo.
- Consumer Financial Protection Bureau. (2022, March). Know your rights when a debt collector calls.
- Consumer Financial Protection Bureau. (2017, October 24). How can I stop debt collectors from contacting me?
- LII / Legal Information Institute. Statute of limitations. (n.d.).
- Texas State Law Library. (2022, September 26). Guides: Debt collection: time-barred debts.
- State of California – Department of Justice – Office of the Attorney General. (2020, August 20). Debt collectors.
- Consumer Federation of America. (2016, November 16). Car title loan regulation.
- Equifax. (2018). How long does information stay on my Equifax credit report.
- Consumer Financial Protection Bureau. (2022, August 24). My debt is several years old. Can debt collectors still collect?
Jonathan Pressman
Jonathan is a writer with over 10 years of experience and a former insurance agent. Jonathan’s focus is to simplify personal finance and help equip you with the tools you need to make smart financial decisions. Despite the criticisms, he remains committed to driving a manual transmission and prides himself on smooth shifting, even in rush-hour traffic.
