You wake up in the morning to get into your car and it is gone. You call the police only to find out it was repossessed. What do you do? Assuming you don't have all the money to get your car back and you want and need your car, there is one easy solution. FILE A CHAPTER 13.
WHAT CHAPTER 13 BANKRUPTCY CAN DO FOR YOU
The law is pretty clear. They have to return the car to you. You have up to 5 years to pay the balance. The interest rate is currently around 5 to 6%; usually much lower than the contract rate. This article will go over the basic rules about repossessed cars and then let you know the Chapter 13 rules.
GENERAL LAWS REGARDING REPOSSESSIONS
Illinois law allows the finance company to repossess your car upon default even if you are just one month behind. And, they do not have to give you prior notice.
The repo people can only repossess on public property. It is a violation of the law to enter your garage or even your private driveway although repo agents often violate these guidelines.
The finance company has to advise you of the full amount to get the car back. This includes its cost for the repo and storage charges. While the law says it has to be reasonable there is plenty of leeway and it is often around $500 on top of the payments you owe.
LIMITED CONSUMER PROTECTION
- If you have paid at least 30% of the total amount on the contract including the down payment they have to return the car if you come up with all the back payments and costs within 15 days. This is good only for the first repo.
- If you have paid more than 60% of the deferred price at time of the default, you are willing to surrender the car the finance company has one of two options. They can take the car as full payment of the obligation or return the car and sue for the balance of the loan.
- Before they can sell the car, the finance company must send a notice saying they intend to apply for a repo title. Along with the notice they must include an "AFFIDAVIT OF DEFENSE" form. If the form is properly filled out and mailed by certified mail within 21 days they cannot immediately get the repo title and must file with the court to obtain the title.
- The repo company must inventory all personal property and give it back to you.
WHAT IF YOU CAN'T PAY AND THEY SELL THE CAR
Assuming they obtain the repo title they can sell the car in a commercially reasonable manner usually at an auction. As a side note auction buyers usually get cars at dirt cheap prices. You have the right to bid at the auction but that requires cash. After the sale the finance company can sue you for any deficiency. This is usually a lot of money and leads to a lawsuit and maybe a garnishment of your paycheck.
THE HOPE THAT CHAPTER 13 OFFERS YOU
Most people simply don't have the back payments and repo fees to redeem their car on their own. To avoid a deficiency judgment you can file a Chapter 7. But assuming you want your car back a Chapter 13 is a proven method to regain possession of your car.
The Appellate Court in Thompson v. GMAC made it clear the car must be returned. Most sophisticated auto lenders return the car without even asking for repossession fees, but they do require proof of physical damage insurance with the lender named as a loss payee or lien holder. If they refuse the Bankruptcy Court will order them to do so.
LOWER INTEREST RATES AND MAYBE A LOWER LOAN BALANCE
In a Chapter 13 you generally have to pay the full balance over a period of time (up to 5 years.) However, if the purchase was more than 910 days (about 2 ½ years) before filing you have the right to pay just the value of the car (known as a cram down). For example if the balance on the loan is $8,000 but the retail value is $5,000: you pay the $5,000 and the $3,000 is unsecured to be paid at a dividend of perhaps 10 cents on the dollar.
The 910 rule does not apply to refinancing such as Title Loans with the automobile given as security. That means that if the loan balance is more than the retail value of the car, you pay the 100% of the value and the balance at a likely small dividend of about 10%.
You have to pay interest on the balance but not the contract interest. The Supreme Court in Till v. SCS Credit Corp has ruled on what interest rate must be paid. Currently the rate is around 5% to 6%. This is substantially lower than most contract rates which we have seen as high as 39% or even the unbelievable interest rate of over 100% with most Title Loans.
If your car has been repossessed or is about to be repossessed fell free to contact our office. We are happy to discuss options available to you. Our advice is free and confidential.
Your car, your choice. You have options: take advantage of them.
ROBERT J ADAMS & ASSOCIATES
Serving consumers and homeowners for 35 years.
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