Navigating Car Repossession Laws in Illinois: The Chicago Guide

What is Car Repossession?

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.

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:

Contracting with Any Towing Company: Your lender has the authority to contract with any towing company to repossess your vehicle. This means that the towing company tasked with repossessing your car doesn’t necessarily have to be located in your city; it can even be out of state. However, it is highly likely the tow company will be based in your area.
Storage of Repossessed Vehicles: After the repossession has occurred, the towing company may or may not store your car on its lot. The storage location may vary depending on the arrangements made by your lender.
Multiple Tow Services: Some lenders may contract with multiple towing services. In such cases, they may offer a commission to the company that successfully completes the tow. This incentivizes towing companies to efficiently execute the 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:

No Breach of Peace: Repossession agents are not allowed to use force, threats, or any actions that would be considered a “breach of peace” during the repossession process. This includes being unable to physically confront the borrower or break into a locked or secured area. I’m not suggesting this, but I have always been curious: If you are in the driver’s seat of your car, can the repo man drive away without breaching the peace?
Private Property: They cannot trespass onto private property without permission. If you object firmly when they arrive or if your vehicle is in a locked garage or behind a locked gate, they can’t take it without breaking the law. But, in my experience, if your car is parked in your driveway and its not behind a locked gate they will tow it.
No Threats or Intimidation: Repo agents are not allowed to use threats, intimidation, or engage in any behavior that could be considered harassment. They are expected to conduct the repossession in a professional and non-confrontational manner.
Legal Hours: Repossession usually takes place during reasonable hours. Breaking into a garage in the middle of the night, for instance, might be seen as a breach of peace. However, if there are no other elements contributing to a breach of peace, a repo man can indeed tow your car at 3 am, or on Sundays.
Out of State Repossessions: There are no geographical limitations on where your car can be repossessed. It’s important to understand that your car can be repossessed outside of your home state, or even outside of your home country. As long as the lender can prove ownership rights and match the Vehicle Identification Number (VIN), they have the authority to repossess the vehicle, regardless of its location.
Limited Legal Recourse: Following the repossession of a car, repossession companies gain a significant advantage. The protections available for suing a repo man for wrongful repossession are minimal, making the process of reclaiming a vehicle quite expensive. Repo companies, aware of these circumstances, see little risk in unlawfully towing vehicles. Their policy resembles “shoot first, ask questions later.”

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:

Non-Default Status: Repossession is unlawful if the debtor was not in default at the time. This could be because no payments were owed or there was still time to make payments. Check for a history of the creditor accepting late payments or an agreement allowing late payments. An estoppel argument may apply if there was no subsequent warning.
Invalid Collateral: If the debtor did not use the property as collateral on the contract, or if the creditor lacks a valid security interest under the law, repossession may be unlawful. For instance, the repossessed car might not be in the debtor’s name, or the creditor took the car as collateral on an earlier loan, not the current defaulted loan.
Breach of Peace: Unlawful repossession occurs if the repo man breaches the peace during the process as noted above. This can happen when the car is taken over the debtor’s objections made in person, using force or threats, breaking into a locked garage, or damaging the debtor’s personal property.
Legal Action Options: Wrongful repossession can be pursued as the tort of conversion, a violation of the Illinois Commercial Code, or an unfair practice under the Illinois Consumer Fraud Act.

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, 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.

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

Keep up with Payments: Regularly make payments on time, as secured creditors can repossess a vehicle even with just one missed payment.
Negotiate a Work-out Plan: Communicate with the creditor to establish a work-out plan, but be cautious of potential increased costs. Ensure any agreement is in writing to avoid misunderstandings.
Beware of “Gab and Grab”: Be cautious of deceptive practices like “gab and grab,” where the creditor agrees to accept late payments but repossesses the vehicle before the agreed date. This may violate the Illinois Consumer Fraud Act (815 ILCS 505/).
Explore Selling the Car: While challenging, selling the car before repossession is an option. However, the debtor may need to pay the difference between the debt and the sale amount to satisfy the lien.
Offer to Return the Car: If needed, propose returning the car to the creditor, but only with a written agreement stating that no additional debt is owed or another favorable arrangement.
Temporary Vehicle “Trade”: In certain situations, debtors might opt for a temporary vehicle exchange with friends or relatives as they work towards a resolution. Although Illinois law doesn’t expressly forbid temporarily hiding property under a lien, creditors have the option to file a detinue action if the vehicle cannot be found. It’s worth noting that a vehicle can indeed be repossessed in another state. If the repo man is aware of the vehicle’s location, they have the authority to tow it, even if it’s in a different state.
Consider Bankruptcy: If warranted, filing for Chapter 13 Bankruptcy before repossession triggers an automatic stay, preventing the creditor from taking action against the property. In my opinion, for most people looking to keep their vehicle, bankruptcy is the strongest option. It may even lower your car payments in certain situations.

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:

Inventory by Repossession Agent: The repossession agent is obligated to inventory any personal property left in the car.
Written Notice of Intent: The agent must provide a written notice indicating the intent to dispose of the personal property after 45 days. The notice should include the location where the property can be retrieved (225 ILCS 422/110).

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:

Contact your lender: Inform them of your situation and discuss your intention to voluntarily surrender the car. This shows initiative and cooperation, potentially reducing additional fees.
Arrange the surrender: Agree on a time and place for the lender or a repossession company to retrieve the vehicle.
Return the car: Hand over the vehicle along with any required paperwork, acknowledging the voluntary surrender.
Sale and possible debt: The lender sells the car to recover some of the loan balance. You’ll still be responsible for any remaining amount after the sale (deficiency balance).

Weighing the Pros and Cons

Pros:

Proactive approach: Take control of a difficult situation instead of waiting for involuntary repossession.
Negotiation opportunity: Potentially reach a settlement with the lender to lessen the financial burden.
Organized Surrender and Convenience: Choosing voluntary repossession buys you time to prepare for the car’s return, removing personal belongings peacefully and avoiding the potential stress and inconvenience of an unplanned involuntary repossession, which can occur at unpredictable and even risky times. From what I’ve seen, this may be the best choice because it is less stressful.
Avoids additional fees: Steer clear of potential towing and storage charges associated with involuntary repossession.

Cons:

Debt isn’t erased: You’re still liable for any deficiency balance after the car’s sale. This means, that yes, you will still have to pay a portion of what you owe even if you turn in your vehicle voluntarily.
Credit score impact: Both voluntary and involuntary repossessions negatively affect your credit score for seven years.
Future loan hurdles: Obtaining future loans might be more challenging due to the repossession mark on your credit history.

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.