Can an Auto Lender Pursue a Deficiency Judgment After a Repossession?

 Posted on September 30, 2021 in Debt Collection

Car loans are some of the most common types of debts held by consumers, and in most cases, auto lenders have options for recovering what is owed when a debtor fails to meet their obligations. While a lender may be able to repossess a vehicle following a default by a debtor, this may not fully cover the amount owed on the loan. In these cases, lenders may pursue a deficiency judgment against the debtor. Lenders should be aware of the potential issues that may affect them in these situations.

Issues That May Affect Deficiency Judgments

After a lender repossesses a vehicle, it may sell the vehicle through an auction or other methods. If the amount received from selling the vehicle was less than the amount that the debtor owed on their auto loan, the lender may attempt to collect the additional amount owed, as well as costs related to the repossession, through a deficiency judgment. Lenders should be aware of issues that may affect their ability to collect a deficiency judgment, which may include:

• Notice - A lender is required to mail a debtor a notice stating that they have the right to redeem the vehicle by paying off the loan and any other amount owed. Depending on the loan agreement, a lender may also provide the debtor with the option to reinstate the loan by making up all past-due payments, penalties, and other costs. If a lender did not provide the debtor with the proper notice or failed to provide other required information, such as a full description of the deficiency balance, the lender may not be able to collect a deficiency judgment.

• Sale of vehicle - A creditor must act in good faith to sell a vehicle in a commercially reasonable manner. If a lender did not publicly advertise the auction where a vehicle was sold, or if a car was sold for less than its fair market value, this may affect the lender’s ability to pursue a deficiency judgment. In addition, a lender cannot collect a deficiency judgment if it retained possession of the vehicle rather than selling it.

• Statute of limitations - A creditor cannot pursue a deficiency judgment if a certain amount of time has passed since the debtor defaulted on the debt. In Illinois, the statute of limitations for debts involving promissory notes, including auto loans, is 10 years.

• Bankruptcy - If a debtor files for bankruptcy, an automatic stay will go into effect preventing a creditor from pursuing a deficiency judgment or taking any other actions to collect debts. A deficiency judgment may be discharged through bankruptcy, but depending on the type of bankruptcy and the other debts owed by the debtor, a creditor may receive some of what is owed.

Contact Our Chicago, IL Auto Loan Deficiency Judgment Attorneys

The attorneys of Dimand Walinski Law Offices, P.C. provide representation for creditors, and we work with auto lenders to help them understand their legal options for collecting debts and deficiency judgments. Contact our Chicago auto loan collections lawyers at 312-704-0771.

Sources:

https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=3384&ChapterID=24

https://www.consumer.ftc.gov/articles/vehicle-repossession