Author: Revisions contributed by, Alan Alop, Legal Assistance Foundation of Metropolitan Chicago
Last updated: August 2011
A repossession is lawful only when the creditor has a valid security interest in the consumer's vehicle. This requires that the security interest be clearly written in a retail installment contract or in a financing agreement. “There must be some language reflecting the debtor’s intent to grant a security interest.” In re Sabol, 337 B.R. 195, 198 (Bk. Ct. C.D. Ill. 2006). If there is no valid security interest, a creditor cannot repossess property.
The debtor loses possession of the property, which can only be regained through redemption procedures, or if the repossession is unlawful (see below). The creditor may or may not re-sell the property, but if there is a re-sale, the creditor can go after the debtor for any deficiency in the remaining debt. 810 ILCS 5/9-615(d). In addition, the creditor can charge the debtor the cost of repossession, which may include costs to prepare the property for resale, towing charges, storage charges, and the like. 810 ILCS 5/9-615(a).
The debtor should get back any personal property left in the car. Unless the creditor also had a security interest in the property inside the car, which is not likely, a lender is required to return the property promptly upon demand. If it won’t, that constitutes theft or conversion, and the debtor has a claim against the lender for the value of the unreturned property. Fleming-Dudley v. Legal Investigations, Inc., 2007 WL 952026 (N.D. Ill. 2007). The request should be in writing and specify the items of property to be returned. If a repo is likely, but hasn’t happened yet, advise the client to keep as few personal belongings in the car as possible. Debtors often keep their purchase documents or loan agreements in the glove compartment; this is not a good idea.
In Illinois, there are 2 ways for consumers to redeem their cars:
After the repossession, a creditor in Illinois must send a notice to the consumer stating that the creditor intends to apply to the Secretary of State for a repossession certificate of title. 625 ILCS 5/3-114(f-7)(1-4). With that notice must be an "Affidavit of Defense" form for the consumer to list any defenses which the debtor may have either to the repossession or to the amount of money which the creditor is claiming is due. If the debtor mails this Affidavit to the creditor by certified mail within 21 days, the creditor cannot immediately obtain the title from the Secretary of State. Instead, “the lienholder must apply to a court of competent jurisdiction to determine if the lienholder is entitled to possession of the vehicle.” 625 ILCS 5/3-114 (f-5) (2).
Without the title, the creditor/lienholder cannot re-sell the car. The creditor will then have to either file a lawsuit (usually a detinue or declaratory judgment action) against the debtor to settle the matter (at which time the debtors defenses will be adjudicated), or will seek to negotiate a settlement with the debtor. Any negotiated settlement should be in writing. If the creditor does nothing after receiving an Affidavit of Defense, the debtor will have to go to court to ask for an award of damages or for the car back.
If a repossession is unlawful, the consumer has the right to get the property back and to be paid money damages. There are a variety of situations which could make the repossession unlawful:
Creditors usually try to re-sell a repossessed car in order to collect on the car loan debt owed. If the amount the creditor receives at the resale pays off only part of the amount owed, the creditor usually will go after the debtor for the rest, called the deficiency. Debtors are often sued to recover the deficiency balance.
Because the creditor must meet many technical legal requirements in connection with the resale, there may be many legal claims and defenses available if the creditor slips up. If the creditor is seeking a deficiency, always check for the following:
After a repo, a creditor must decide whether to keep the property or resell it. If creditor decides to keep it, or doesn’t resell it according to law, then they cannot go after the debtor for any deficiency. If a creditor uses a repossessed vehicle, the law says he has kept it.
If the creditor decides to resell the car, then the creditor must send the debtor a proper written notice about the intended resale, which can be either public or private. For a public sale, such as an auction, the notice must include the time, date and place of the sale. For a private sale, the creditor must state the date after which the sale will be held. The requirements of the notice are set out at 810 ILCS 5/9-613 and 5/9-614.
The Purpose of the Notice is to give the debtor a chance to redeem the vehicle before resale, to give the debtor a chance to find potential buyers for the vehicle, and to give the debtor a chance to observe every aspect of the sale to make sure the vehicle is sold for a fair price.
Other Requirements of the Notice:
The law requires that all aspects of the resale must be commercially reasonable. This means that the manner, method, time, place, and terms of the resale must all be reasonable by commonly accepted commercial practices. The creditor must use every reasonable means and their best efforts to obtain the full value of the car or other property. However, just because the sale brought a low price for the car does not prove that the sale was unreasonable. But, if there is a big difference between the price obtained at resale and the true value of the car, a judge might look very closely at all aspects of the sale to see if it was fair.
Consider looking at references from the public library like the "red book" or "blue book", which is published at regular intervals to discover the book value of the car at any given point in time.
Private Sales. The creditor is not allowed to bid upon or purchase the property. More than one bid must be solicited. If the notice of resale informs the debtor that the sale is to be private, it must be a private sale.
Public Sales. This is usually an auction. Here, the creditor is allowed to bid upon and purchase the property. More than one bid must be obtained. It requires appropriate advertising or other publicity to attract bidders. The secured property must be available for inspection by the public before and during the sale. The sale must occur at a convenient location and be accessible to all members of the community. It should not take place in bad weather. If the notice informs the debtor that the sale is to be public, it must be a public sale.
Automobile "Dealers Only" Sale. This kind of sale may be unreasonable because the consumer is denied the chance to take part in the sale. Also, if the creditor has a retail store (such as a car dealer) available to it, the property should be sold through the store on a retail basis. Sales at wholesale and to dealers will usually bring a much lower price.
The Defense. If you can show either that the creditor failed to give a proper resale notice or failed to resell in a commercially reasonable manner, the debtor has a defense to a suit or claim for deficiency. In this case, the law presumes that the value of the car is equal to the outstanding debt. Under this presumption, no deficiency would be owed. But, if the creditor can show in court that the value of the car when repossessed was less than the remaining debt and can show the resale was commercially reasonable, then the debtor still owes the deficiency. See 810 ILCS 5/9-625.
The Counterclaim. Again, if there is either an improper resale notice or a resale that is not commercially reasonable, then 810 ILCS 5/9-625 of the Uniform Commercial Code permits the debtor to sue for actual damages and statutory damages against the creditor. Statutory damages are equal to the finance charge plus 10% of the cash price of the secured property. The counterclaim is available for an improper notice even if the resale was otherwise commercially reasonable. If there are multiple debtors, such as a husband and wife, each may be able to get damages assessed against the creditor.
For a variety of reasons, it is unlikely that a creditor is going to repossess a debtor’s household goods, furniture, or personal items. This is true even if the creditor gets a court judgment on the debt. If a creditor threatens to take something valuable, like a color TV or jewelry, or something of personal value such as a family photo album, the debtor should not necessarily be concerned.
Reasons Why Creditors Do Not Repossess Household Goods:
If there is no security interest in the goods, before taking any household goods, the creditor must get a court judgment and a turnover order directing the county Sheriff to seize the goods from your home.
Preventing a Repossession. Simple: don’t let the repo man into the house! The debtor should be advised to politely, but firmly, tell the repo man that he or she will not consent to their entering the home. The debtor should also advise their landlord and family members not to let them in, either. Any attempt to come into the home without an invitation is unlawful. They should call the police (and a lawyer!)
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