Your car loan lender is not obliged to give you a notice before the repossession. However, your lender is responsible to issue particular notices after repossessing and selling your vehicle. Here are some of the required notices:
Notice Before Repo
In most states, creditors are not required to give notices to borrowers before seizing any vehicle. Law enforcement and courts don’t usually monitor the process of car repossession; thus, you will never know when your car will be repossessed. The following factors can help you determine when your car can be repossessed:
Car Loan Agreement
A car loan agreement serves as a binding contract that protects both the debtor and the creditor. It should specify the terms and conditions of your auto loan including the loan amount, interest rate, monthly amortization, due dates, and other provisions. Most of the car loan agreements made by both parties (borrower and lender) emphasize the condition and consequence of having your car repossessed in case of late payments. It is advisable to consult a reliable Schaumburg bankruptcy lawyer to help you write a well-detailed car loan agreement.
This agreement should explain what will happen if you missed your due dates. Furthermore, it must state the grace period allowed before your creditor seize your car. Generally, it allows car loan lenders to repossess a vehicle if you are one month behind your due date. Even though you are already in the final month of paying off your loan, still, the lender has the right to repossess your vehicle in case of late payment.
Past Payment History
A previous overdue payment that has been considered and accepted by your creditor could be used to waive your creditor’s right to repossess your car in case you fail to pay on time again. It might not be possible for you to stop the bank or lender from immediate repossession, but you can use your lender’s prior consideration of your past-due payment as a defense strategy in case you will be sued for a deficiency balance.
Notice After the Car Repossession
According to Illinois state law, your creditor has to send you a written notice of the vehicle repossession typically five days after the repo; but it has to be sent to you before they sell your car in a public auction. Here are some of the important notices that must be sent to you in writing:
Notice of Default, Right of Redemption, or Right of Reinstatement
After the repossession, your creditor must send you a Notice of Redemption. This notice tells you whether the creditor will keep or sell your car. It also tells you that you have a right to buy back your car.
The written notice must include the following details:
- The total amount of outstanding balance (including charges)
- Due date to redeem the auto loan
- Methods of redeeming or paying off the auto loan to take back your vehicle
If you will be allowed to have the right of reinstatement, it is necessary to mention the required amount for you to get the loan current on past-due payments and the guidelines that you need to follow in reinstating your loan. As long as you continue to meet the terms of your contract going forward, the car is yours.
Notice of Sale
Even if you choose not to redeem your car or reinstate your auto loan, your creditor is still responsible for sending you a notice in writing if there is an intent to sell your repossessed car. A notice of sale must include the following details:
- Schedule of intended private sale
- Details of public auction sale (including the date, location, time, and contact information)
- Explanation of liability for any deficiency balance owed after the sale
- Allocation of the proceeds from selling your car for your debt settlement
- Computation of the total amount you owe and other debt obligations
If your car is taken and there is a planned sale, the creditor needs to sell it for a “commercially reasonable” price. It doesn’t have to be the highest possible price, but your creditor must try to get a fair market value out of your vehicle.
Notice After Selling Your Car
Even if your car is sold, you may still owe money to your creditor depending on the proceeds of the sale. In most cases, selling your car doesn’t cover the full amount of the auto loan. Once the vehicle is sold at auction, all the proceeds will be allotted to pay off the loan balance.
Your creditor must provide a detailed explanation of how the proceeds of the sale were allocated to pay back your debt. The proceeds must be applied in the following order:
- Reasonable expenses and costs of repossession, storage, and disposal of the car
- Attorney’s fees
- Loan Balance
If the money collected from the sale is insufficient to cover the loan amount, anything that’s left is called the deficiency balance, which the borrower is responsible for. If you fail to pay the deficiency balance, your creditor might take legal action by filing a lawsuit.
On the other hand, if the sale proceeds are more than the amount you owe, whatever’s left is referred to as a “surplus balance”. Your creditor should provide detailed accounting and computation of the surplus balance and pay it back to you under one condition: If you have a co-signor who has the right to the excess, then the creditor must give the surplus balance to your co-signor. This is a rare and uncommon situation that can happen in a repossession since most of the time, the car is worth less than your loan amount.
Effects of Car Repossession
Aside from losing your car in repossession, your credit score will be greatly affected, and you’ll probably owe significant debts. Repossession, whether you eventually get the car back or not, can stay on your credit report for seven years and can lead to lower credit scores.
The Role of Bankruptcy Attorney
Is your car in danger of being repossessed? There are several ways on how to handle it. Filing Chapter 7 and Chapter 13 bankruptcy may be able to help you keep your car and manage payments on your loan. It is also important to know about the repossession laws that are applicable to your current financial situation. For legal help in avoiding repossession of your vehicle, do not hesitate to consult our experienced Schaumburg bankruptcy attorneys at Cutler Bankruptcy. Our competent lawyers can help you understand how repossessions work, how to get your car back, and what you can do to avoid them.