Consumer Update - Liability For Installment Loans

Liability for Installment Loans

Before January 1, 1997, only mothers and fathers or husbands and wives who co-signed on an installment loan for a motor vehicle were primarily liable along with the actual owner of the vehicle.

In a recent decision, the Illinois Supreme Court held that persons (other than parents or spouses) who co-signed as buyers on a motor vehicle loan contract, but did not take actual possession of the vehicle, could not be held primarily liable for the debt. This case arose when an automobile dealership attempted to recover the purchase price of the vehicle from the co-signor without instituting any direct proceedings against the owner of the vehicle who was in actual possession of it. In this case, the co-signor was not primarily liable on the debt even though his name was listed on the Certificate of Title as an owner. The court distinguished between the actual receipt of the vehicle as opposed to legal receipt evidenced by the title.

However, under an amendment to the Illinois Motor Vehicle Retail Installment Sales Act that became effective on January 1, 1997, a spouse, parent,or any person listed as an owner of the motor vehicle on the Certificate of Title is primarily responsible for paying the debt on the vehicle if they co-signed as a buyer on the loan.

The effect of this recent amendment, notwithstanding the recent court decision, is that a person who is not a spouse, parent, or in actual possession of the vehicle but signs as a buyer on a motor vehicle retail installment sales contract will be held primarily liable on the debt if their name is placed on the Certificate of Title. It is unlikely that any dealership or lender would omit any co-signor's name from the title to the vehicle.

Anyone who does not fit the Act's criteria as a spouse, parent, or owner (actual or legal) would be put in the capacity of a guarantor on the loan. This means that when you co-sign on a motor vehicle installment loan you become secondarily responsible for paying the debt. Your obligation to the seller as a guarantor arises only after the seller has diligently taken all legal means to collect the debt from the primary obligor, i.e., the owner, or parent or spouse co-signor. If the seller is not able to collect all of the debt, or the primary obligor is insolvent or bankrupt, or it otherwise becomes apparent that it is useless to proceed against them, the seller may look to you to pay the remainder of the debt on the vehicle.

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