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TJ, Esq.
TJ, Esq., Attorney
Category: Consumer Protection Law
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Experience:  JD, MBA
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I have a question regarding Illinois bankruptcy law. I

Resolved Question:

I have a question regarding Illinois bankruptcy law.

I had all my debts discharged in a Chapter 7 bankruptcy 2 years ago. At that time I had an auto loan in the bankruptcy that was NOT re-affirmed.

My original plan with the loan was to re-affirm it but I never sent the paperwork through. I have always made the payments to this day because I wanted to keep the vehicle and eventually pay it off. My credit history shows the account as closed, that it was discharged through the Ch 7 bankruptcy and that I owe a zero balance. They also stopped recording my payments 2 years ago when my debts were discharged. If I log into my online account I can still see what is technically owed on the car, which is roughly 4000 dollars. When I have called the bank to ask questions about my loan they always have to send me to their bankruptcy department, and they have told me that once a car loan is discharged they do not report payments to the credit bureaus.

Four days ago I was in a car accident with this vehicle. The vehicle has been totaled by my insurance company and because I have full coverage they are going to give me a check.

My question is, what, if any liability do I face in this situation? Is there any way the bank can make me pay them anything considering that loan was actually discharged 2 years ago?

My concern arises because originally I was told by my attorney I could just stop making payments and the bank would come get the car because the debt was discharged. However, now that the car is at a mechanics shop and is not drive-able, I do not know if that changes anything. If the insurance company had just fixed the car I would not be in this situation, but because they are paying me instead I don't know if that changes anything as well.

My main defense for not paying (besides that the debt was discharged) is that it was my understanding that because I did not re-affirm the auto loan that the bank could technically have taken the vehicle away from me at any time, regardless of if I made the payments. I assumed the reason for this was because the bank was essentially taking a risk by not retrieving the vehicle once the debt was discharged, but they did not do so because they were happy with me continuing to make payments on something that I no longer was legally required to.
Submitted: 5 years ago.
Category: Consumer Protection Law
Expert:  TJ, Esq. replied 5 years ago.
Hello and thank you for allowing me the opportunity to assist you.

Please note that for legal reasons my answers are only intended to be general/educational information rather than specific legal advice. If you need specific legal advice, then you must consult with a local attorney in your jurisdiction.

I'm sorry to say that the lender will likely have a valid claim on the insurance proceeds for the unpaid balance of the loan. You must bear in mind that the bankruptcy discharge merely acts as a stay on the collection of any debt that is discharged (see Section 524), but it does not eliminate the entire transaction by invalidating the contract. That is why the lien was still valid and could be enforced. Although the lender cannot sue you for repayment, it can claim that it has a lien in the insurance proceeds just as it had on the vehicle, and it could take action to enforce that lien. At the same time, you may not want to voluntarily offer to pay ... you may want to just stop making monthly payments and wait for them to make a claim on the insurance proceeds. It's possible that it will not do so.

I regret that my answer is generally unfavorable, but please understand that it would be unfair to you (and unprofessional of me) to provide you with anything less than a truthful response. With that in mind, I hope that you found value in my answer. If your concerns were not satisfactorily addressed, then feel free to let me know, as I will be happy to clarify my answer or help with your follow-up questions. In the meantime, please remember to click the green accept button so that I will receive credit and compensation for my time (doing so does not end our discussion). Positive feedback is always appreciated as well. Thank you and good luck!
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