Car repossession is when the lender takes back your car because you haven’t been able to make your car loan payments. Every state has its own rules for this process, and here, we’ll focus on what you need to know if you’re in Illinois. Chicago, in particular, grapples with a high rate of repossessions, driven by an escalating number of delinquencies. National delinquency rates on subprime loans have more than doubled, emphasizing the urgency for borrowers to be well-informed about repossession laws.
For many, losing access to a car due to financial difficulties can be stressful. Facing the prospect of repossession is daunting, particularly without a clear understanding of one’s rights and the associated laws. As a bankruptcy attorney in Illinois, my goal is to empower individuals by providing essential knowledge about repossession laws to navigate financial challenges effectively.
How Many Payments Can I Miss Without Getting My Car Repossessed?
An auto loan, classified as secured debt, grants the lender the right to repossess the vehicle upon default. It’s essential to carefully examine your loan contract to understand the definition of “default.” While some agreements may include a grace period, allowing borrowers a few days after the due date to make payments without penalties, Illinois vehicle code permits repossession after just one missed payment. Surprisingly, Illinois law doesn’t mandate lenders to provide notice before seizing a vehicle. In my experience, I’ve witnessed vehicles being repossessed with as little as 30 days of missed payments. However, this typically follows a long history of missed payments. If your lender thinks you’ll keep missing payments, they’re more likely to quickly take back the vehicle to protect their interests.
Also, Illinois law has no statute of limitations on repossessions. A lender can pursue repossession forever.
Illinois Repossession Laws
Repossession in Illinois is governed by several statutes, including:
For repossession to occur legally, the lien holder must establish a valid security interest in the collateral, requiring a clear claim to title in the case of vehicles. Without a valid security interest, creditors cannot repossess the property. A lien holder is the entity or individual to whom you owe a debt, and this can be various parties, including the car dealership itself.
What Allows a Lender to Repossess Your Car
In Illinois, the legal right for a lender to repossess a vehicle after default is established by 810 ILCS 5/9-609. This statute gives the secured lienholder the authority to take possession of the vehicle without going to court, as long as the repossession is done without a breach of the peace.
What Is a Secured Lien?
A secured lien is the lender’s legal claim to the vehicle, which protects their financial interest in it. If your vehicle’s title lists the lender’s name above yours, it means the lender’s interest in the vehicle is secured, and you do not fully own the car until the loan is paid off. The lender holds the right to repossess the vehicle if you default on your payments because their financial interest is protected by this lien.
UCC Perfection Is Not Necessary for Repossession
Although lenders can file under the Uniform Commercial Code (UCC) to perfect their lien, perfection is not a requirement for repossession. UCC perfection primarily secures the lender’s priority over other creditors but does not affect the lender’s ability to repossess the vehicle in the event of default. As long as the lender’s lien is noted on the vehicle’s title, they have the right to repossess without UCC perfection.
The Role of Towing Companies in Vehicle Repossession
Your lender holds the right to repossess your vehicle when you default on your car loan payments. In this process, they often contract with towing companies to retrieve the vehicle. Here are some important points to understand about towing companies’ involvement in vehicle repossession:
Car Repossession Notice Requirements in Illinois
Notification is not required. Despite its apparent unfairness, lenders do not need to give notice before towing your vehicle in Illinois. Also, if you fail to meet the contractual terms of an auto loan in Illinois, the lender can repossess the vehicle without the need for any court involvement or prior warning. This could result in an abrupt and unforeseen loss of transportation, significantly affecting your daily life.
What the Repo Man Can and Cannot Do
When the repo man, or woman, is taking back a car, they can do certain things to get it for the lender. But, there are also rules they have to follow:
Repossessions on Public Property
In most jurisdictions, repossession is entirely legal in public spaces, making various common locations prime targets. Some of the typical places where repossessions frequently occur include:
Remember, repossession agents have access to all the information your lender provides, meaning they usually know where to find your vehicle. Plan accordingly.
Unlawful Repossessions
If repossession is deemed unlawful, the consumer holds the right to reclaim the property and seek monetary damages in a separate lawsuit. Several situations may render repossession unlawful:
Right to Cure in Illinois
When a debtor loses possession of their property, reclaiming it is possible only through redemption procedures, provided the repossession is not unlawful (above). In the event of a re-sale, the creditor can pursue the debtor for any deficiency in the remaining debt, as outlined in 810 ILCS 5/9-615(d). Additionally, the creditor has the right to charge the debtor for repossession costs, covering expenses such as property preparation, towing, and storage (810 ILCS 5/9-615(a)).
How to Get Repossessed Car Back Without Filing Bankruptcy.
Reinstatement, the 30% Rule (625 ILCS 5/3-114(f-7)): This method only applies if, at the time of repossession, the debtor has paid a minimum of 30% of the deferred payment price or the total of payments due (including down payment and trade-in within the 30%). If so, a notice must be sent within three days after repossession, giving the debtor 21 days to redeem. Those meeting the 30% threshold can reinstate the sales or loan contract by paying overdue payments, late charges, repossession costs, storage fees and addressing any other defaults. However, this method can be utilized only once during the contract’s lifetime, and it’s unclear if certain defaults, like an illegal use of the vehicle, can be cured.
Redemption Under 810 ILCS 5/9-623(c)(2): Applicable to all consumers, this method allows debtors to redeem any repossessed property before the creditor disposes of it. To do so, the debtor must pay the entire contract balance, including accelerated payments, and cover repossession and storage charges. This might require taking out another loan or seeking assistance from a friend or relative to purchase the car, provided its value matches the remaining loan amount.
Buying Your Vehicle Back at Auction: Typically, within 30 days of repossession, the lender will auction the vehicle to the public. If you can secure the necessary funds, you may have the opportunity to repurchase your vehicle. Before the auction begins, you can often view the starting bid and any “buy it now” price online, which provides insight into the amount of money you’ll need. If your car was repossessed in Chicago, the auction likely won’t occur in the city itself, but you may have the option to bid online, eliminating the need to attend in person.
Full Payment Made but Vehicle Not Returned
After repossession, if you have paid the full amount required to reinstate or redeem your vehicle and the lender refuses to return it, it is crucial to have comprehensive documentation of your payments. This should include receipts, bank statements, and written confirmation from the lender. Clear and organized records can help resolve disputes and provide essential evidence if legal action is needed. Additionally, keeping records of any communication with the lender, such as emails or letters, can further strengthen your case.
Delays in vehicle returns are often caused by towing companies, which typically release vehicles by appointment only, and appointments may not be available for up to two weeks. While these delays are common due to security concerns, anything beyond two weeks could indicate a serious issue, at which point legal action might be considered. However, in most cases, the cost of legal representation may far exceed the benefit, as the best outcome would likely be getting the vehicle back just a few days earlier.
How to Stop a Creditor from Reselling a Car After Repossession
Following the repossession in Illinois, the creditor is required to send a notice to the consumer, expressing their intent to apply for a repossession certificate of title (as per 625 ILCS 5/3-114(f-7)(1-4)). In many cases, this notice may be sent after the vehicle has been auctioned, but prior to the transfer of title. This notice includes an “Affidavit of Defense” form, allowing the consumer to outline any defenses against the repossession or the claimed amount. If the debtor mails this affidavit to the creditor via certified mail within 21 days, the creditor cannot promptly obtain the title from the Secretary of State. Instead, they must seek approval from a court to determine their entitlement to the vehicle’s possession (625 ILCS 5/3-114 (f-5) (2)). Additionally, these requirements only apply if the vehicle owner has not already signed an assignment of the existing title.
Without the title, the creditor cannot finalize the car’s resale. They must either file a lawsuit, such as detinue or declaratory judgment, against the debtor to resolve the matter, during which the debtor’s defenses will be explained in Court. If a lawsuit is filed, the debtor might be responsible for the creditor’s legal fees if the court deems their defense unfounded. Alternatively, the creditor may opt for negotiating a lesser payoff amount, and any agreed-upon settlement should be documented in writing. If the creditor takes no action after receiving an Affidavit of Defense, the debtor may need to go to court to seek damages or the return of the car.
What is a Resale Deficiency Balance?
After vehicle repossession, creditors typically attempt to sell the vehicle to recover the outstanding loan amount. If the resale amount is insufficient to cover the entire debt owed, the creditor may pursue the debtor for the remaining balance, known as the deficiency. This situation could result in a lawsuit, where you might be sued for the difference between the resale price and your remaining loan balance, adding to your financial challenges.
However, it’s important to note that there is a statute of limitations on a lawsuit for a resale deficiency balance, which is generally 4 years. If a car lender has not filed a lawsuit within 4 years of your first missed payment, they are permanently barred from collecting from you. In such cases, you may choose to ignore any further collection efforts.
How to Prevent Car Repossession in Illinois
How to Get Your Stuff Out of Your Car After Repossession
If your car has been repossessed, your initial step should be to contact the repo man to request the return of your belongings. In case you’re unaware of who repossessed your vehicle, reach out to your lender, as they can provide this information.
Following a car repossession, the creditor must take the following steps to dispose of personal belongings left in the vehicle:
Lenders or their agents typically cannot charge a fee for returning personal property. However, if a small fee is requested (e.g., $25), it may be advisable to pay to expedite the return of property. If the repossession agent refuses to return the property upon the debtor’s or their agent’s demand, constituting theft or conversion, the debtor has a claim against the lender for the value of the unreturned property.
It’s recommended to make the return request in writing, specifying the items to be returned. If a repossession is anticipated but hasn’t occurred yet, it is advisable not to keep personal belongings in the car.
Should I Voluntarily Surrender My Car?
Struggling to keep up with your car payments? Opting for voluntary repossession might seem like a less stressful option compared to waiting for the lender to take it away. However, before making this important decision, it’s crucial to understand both the potential benefits and the significant drawbacks that come with it.
What is Voluntary Repossession?
Voluntary repossession allows you to return your car, typically used as collateral for the loan, directly to the lender when you can no longer afford the payments. Unlike an involuntary repossession, initiated by the lender, this choice offers some control over the process and a chance to negotiate a more favorable outcome.
The Repossession Process:
Weighing the Pros and Cons
Pros:
Cons:
How Bankruptcy Can Halt Repossession
While voluntary repossession is an option, it’s not your only option. Another alternative is to file for bankruptcy. A Chapter 7 bankruptcy allows you to give up the car and discharge the car loan along with other unsecured debts like credit cards, medical bills, personal loans, judgments, collections, older taxes, and many other debts. Also, you can redeem the vehicle for the current value. I’ve seen lots of cases where filing for Chapter 7 gives people more time with their vehicles. This happens mostly because the lender doesn’t want to pay the lawyer’s fees for a motion to lift the stay. But it’s important to know that this extra time isn’t forever.
If you wish to keep the car but find the payments unmanageable, filing a Chapter 13 bankruptcy could be a good solution. This option allows you to rewrite the loan terms, potentially reducing the interest rate and extending the payment period. If you’ve had the car for more than 2.5 years, you might be eligible to cram down the loan to the current value of the car, resulting in substantial savings.
Also, if your vehicle has already been repossessed, filing Chapter 13 bankruptcy can get your car back.
Schedule a Free Consultation with Steven J. Grace
Facing car repossession in Illinois can be overwhelming, but you don’t have to go through it alone. This guide has equipped you with knowledge about your rights, explored your options, and emphasized that filing for bankruptcy isn’t the only way out. Remember, taking action early and seeking professional help can make a significant difference. Whether you negotiate with your lender, explore voluntary surrender, or consider bankruptcy, empower yourself with the right information and resources to navigate this challenging situation towards a more secure future. Don’t hesitate to reach out to legal or financial professionals for personalized guidance throughout your journey.