How to File for Bankruptcy and Keep Your Car
June 1st, 2022 by A Licensed Insolvency Trustee
If I File Bankruptcy Can I Keep My Car?
Bankruptcy is a solution to overwhelming debt and is intended to give the honest but unfortunate debtor a new financial start. However, many consumers are reluctant to explore the possibility of bankruptcy because they can’t imagine making a “new start” without their vehicle. This is perfectly reasonable.
Fortunately, it is a myth that you lose absolutely everything if you file for bankruptcy. In fact, up to certain limits that vary province by province, you are allowed to retain most personal articles (of little monetary value), certain tools of your trade, and also a list of items that are included in your province’s exemptions to seizure.
Does Everyone Who Files for Bankruptcy Lose their Vehicle?
Very few people who file for bankruptcy in Canada have to give up their car. All of Canada’s provinces specify that under certain conditions, a motor vehicle is exempt from seizure in bankruptcy.
Your particular situation will be determined by where you live, the value of your vehicle, whether you use it for your work or for travelling to your workplace, and whether you own the vehicle outright or pay lease or loan payments for it.
I Own My Vehicle – Will I Lose it in a Bankruptcy?
This is the simplest situation.
But first, ask yourself: do you own your vehicle outright? Owning it outright means no loans are secured against it (most car loans are secured against the vehicle itself). If you are currently paying out a loan for your car, the car’s value most likely has a lien against it – meaning that the financing company has an “interest” in it, and you don’t own the vehicle outright. If this is the case, see the next section, “I Lease My Vehicle…”.
If you do own your vehicle outright, you may be in luck, depending on your province of residence.
Each province specifies, in its list of assets exempt from seizure in a bankruptcy, the maximum vehicle value that is exempt. Many used cars will fall within this limit. If this is the case, you will not need to surrender your vehicle.
Note that if your vehicle’s value is close to this limit, your Licensed Insolvency Trustee may require that you have the vehicle appraised, to make sure of its value.
What happens if my vehicle is worth more than the limit?
What can be done if your vehicle is too valuable to fit within the exemption, but you still wish to keep it if possible?
If the vehicle is above the limit (but not by very much), your Trustee may be able to propose a solution in which you pay the overage over time, during your bankruptcy.
It is important to have this discussion with your Trustee before you file, in case it would be advantageous to switch to a car of less value before your bankruptcy.
I Lease my Vehicle, or am Paying a Loan for It – Will I Need to Return It in a Bankruptcy?
If your vehicle is leased, you will not be required to forfeit it in bankruptcy (it is not technically your asset).
If your leasing or loan payments are reasonable, and if your account is in good standing with the financing company, you will be able to continue with your lease or loan arrangement and keep your vehicle.
However, you will need to assess whether your auto financing costs are affordable for you. For some consumers, high vehicle leasing costs are part of the reason they have become insolvent!
If this is the case – your vehicle lease or loan payments are too high for your budget – it is often best to surrender the vehicle before you file for bankruptcy. Why surrender your vehicle before you file? This is because in some cases you will still owe money to the auto financing company after you have turned in your vehicle. The same applies if you have been paying an auto loan with your vehicle as security.
You will still owe money if the current value of your vehicle has fallen below the amount you owe the financing company. In this case, the value of the returned vehicle will fall short of covering what you currently owe – creating a shortfall.
If you turn in your leased or loaned vehicle, and the financing company gives you a bill for their shortfall, this debt can then be included in your bankruptcy.
I Don’t Use my Vehicle for Work – Will I Lose It if I File for Bankruptcy?
Each province has its own list of particular assets (some with specific value limitations) that are exempt from seizure in consumer bankruptcy. In addition, certain provinces limit the exemption to vehicles that are used for employment.
A Licensed Insolvency Trustee is the best person to interpret the rules for you. Provincial laws and their associated regulations can be a maze to search online and are sometimes subject to interpretation.
Tips on Vehicles and Filing for Bankruptcy:
- Make sure to discuss your leasing situation with your Licensed Insolvency Trustee before filing for bankruptcy, so that all your options will be open.
- Carefully consider your budget, the size of your auto payments, and whether your vehicle is exempt from seizure in bankruptcy when deciding whether to keep your vehicle.
- If you decide to keep your vehicle and continue your car payments through bankruptcy, this will help your credit rating recover faster once you receive your discharge.
- If you own more than one motor vehicle and you want to keep both of them, or if your vehicle’s value is significantly over your province’s limit, ask your Trustee if a consumer proposal is an option to bankruptcy.
- Note that entering into a new leasing arrangement during bankruptcy is usually not possible.
Learn More: Speak with a Licensed Insolvency Trustee
Navigating all the facts around personal vehicles and bankruptcy can be daunting – particularly when researching and interpreting your province’s particular regulations. A Licensed Insolvency Trustee can help and will have the facts at hand.
Only a Licensed Insolvency Trustee (LIT) can file your bankruptcy paperwork. LITs understand your situation – it’s their job to find the best solution for both you and your creditors. Your first visit is no obligation, confidential, and free of charge. Take the first step to repairing your financial situation – contact a local Licensed Insolvency Trustee today.
Comments are closed.