AJ, regardless of what an illegal contract were to say, OP can not enforce the contract on something that he screwed up on. OP missed car payments and the father-in-law is the one getting screwed, not once, but twice... The first time the father-in-law got screwed by getting the vehicle repossessed because he put money down on the insurance that he has now lost, and then he got screwed again from his son-in-law trying to recoup the money for the loan from him or his insurance company for not making payments on the loan which resulted in the repossession.

If the father-in-law were to take over payments on the vehicle, and then missed those payments, then the father-in-law would be liable for all and any cost associated with the loan and repossession. But that is not the case here.