Yes, Article 9 of the Illinois Uniform Commercial Code (UCC) generally requires secured parties to pay a debtor for any surplus resulting from the sale of a vehicle that has been repossessed, and we believe this provision also is applicable to a vehicle surrendered in a bankruptcy proceeding.

Whether a vehicle is repossessed by judicial process or outside of the judicial process, the Illinois Vehicle Code provides that the lienholder may “sell or otherwise dispose of the vehicle as authorized under the Uniform Commercial Code.” Article 9 of the UCC permits secured parties to sell loan collateral following a default and outlines the order in which cash proceeds resulting from the sale should be applied. If there is a surplus following the application of cash proceeds, Article 9 requires the secured party to pay the surplus to the debtor (unless the secured party is required to apply or pay over cash proceeds to a consignor).

Additionally, the Illinois Vehicle Code provides that “if the repossessed vehicle is the subject of a bankruptcy proceeding or discharge . . . the lienholder may proceed to sell or otherwise dispose of the vehicle as authorized by the Bankruptcy Code and the Uniform Commercial Code.” Consequently, we believe that Article 9’s surplus repayment provisions would apply to a vehicle surrendered in a bankruptcy proceeding.

For resources related to our guidance, please see:

• Illinois Vehicle Code, 625 ILCS 5/3-114(f-10) (“In all cases wherein a lienholder has repossessed a vehicle by judicial process and holds it for resale under a security agreement, order for replevin, or other court order establishing the lienholder’s right to possession of the vehicle, the lienholder may proceed to sell or otherwise dispose of the vehicle as authorized under the Uniform Commercial Code or the court order.”)

• Illinois Vehicle Code, 625 ILCS 5/3-114(f) (“In all cases wherein a lienholder has repossessed a vehicle by other than judicial process and holds it for resale under a security agreement, and the owner of record has executed an assignment of the existing certificate of title after default, the lienholder may proceed to sell or otherwise dispose of the vehicle as authorized under the Uniform Commercial Code.”)

• Illinois UCC, 810 ILCS 5/9-609(a)(1) (“After default, a secured party: . . . may take possession of the collateral . . .”)

• Illinois UCC, 810 ILCS 5/9-610(a) (“After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing.”)

• Illinois UCC, 810 ILCS 5/9-615(a) (“A secured party shall apply or pay over for application the cash proceeds of disposition in the following order to:

(1) the reasonable expenses of retaking, holding, preparing for disposition, processing, and disposing, and, to the extent provided for by agreement and not prohibited by law, reasonable attorney’s fees and legal expenses incurred by the secured party;

(2) the satisfaction of obligations secured by the security interest or agricultural lien under which the disposition is made;

(3) the satisfaction of obligations secured by any subordinate security interest in or other subordinate lien on the collateral if:

     (A) the secured party receives from the holder of the subordinate security interest
     or other lien an authenticated demand for proceeds before distribution of the
     proceeds is completed; and

     (B) in a case in which a consignor has an interest in the collateral, the subordinate
     security interest or other lien is senior to the interest of the consignor; and

(4) a secured party that is a consignor of the collateral if the secured party receives from the consignor an authenticated demand for proceeds before distribution of the proceeds is completed.”)

• Illinois UCC, 810 ILCS 5/9-615(d) (“If the security interest under which a disposition is made secures payment or performance of an obligation, after making the payments and applications required by subsection (a) and permitted by subsection (c): (1) unless subsection (a)(4) requires the secured party to apply or pay over cash proceeds to a consignor, the secured party shall account to and pay a debtor for any surplus; and (2) the obligor is liable for any deficiency”)

• Illinois Vehicle Code, 625 ILCS 5/3-114(f-30) (“If the repossessed vehicle is the subject of a bankruptcy proceeding or discharge: (1) the lienholder may proceed to sell or otherwise dispose of the vehicle as authorized by the Bankruptcy Code and the Uniform Commercial Code . . .”)