Do I keep my car in a Bankruptcy or Consumer Proposal?

Many Canadians have struggled financially over the past three years. Some lost their jobs during the COVID-19 pandemic and are now faced with increasing inflation and rising interest rates. Many had no choice except to take on more debt to cover their cost of living and are now trapped in a vicious cycle of borrowing.

Feeling stressed and overwhelmed by your debt isn’t anything to be ashamed of — people across the country are finding themselves in the exact same situation.

There are solutions available to help you achieve a fresh financial start, such as filing for Bankruptcy or entering into a Consumer Proposal. However, you might be worried about losing valuable assets like your car, which you rely upon for transportation to your job, essential appointments, and more.

We’re here to answer your questions about whether you will be able to keep your vehicle if you choose Bankruptcy or a Consumer Proposal to work towards achieving a debt-free future.

What happens to my car when I file for Bankruptcy?

In a Bankruptcy, you’ll work with a Licensed Insolvency Trustee (LIT), who will deal with your creditors. The LIT will make sure you understand your options before you file, inform your creditors and guide you through the process.

Many people think they will lose everything when filing Bankruptcy, but this is not the case. You may be able to keep valuable assets such as your car in certain circumstances. The way an LIT will deal with your vehicle is based on whether you have a financing agreement or lease in place:

Vehicles with a financing agreement or lease

If your vehicle has a financing agreement or lease, the LIT will determine if there is any equity in the vehicle. Equity is calculated by taking the value of the vehicle minus the balance due in the remaining payments of the financing agreement or lease (including the buyout option amount).

If the equity on your vehicle is negative, you will be able to keep it. However, if the equity is positive then your LIT will allow you to keep your vehicle if you pay the LIT the positive equity amount. For example, if your car has a positive equity of $1,000, you could pay your LIT that amount to keep your vehicle.

The payment to the LIT for your vehicle usually happens over a period of time and the amount will go into your Bankruptcy estate to be paid to your creditors. It is important to note that your vehicle will also still be subject to the financing or lease agreement, and you must continue to make those payments throughout the Bankruptcy or risk the creditor seizing the vehicle.

Vehicles without a financing agreement or lease

If your vehicle does not have a financing agreement or lease, the LIT will determine if the value of your vehicle is over the exemption limit allowed in your province.

Each province has a different exemption amount. For example, in Ontario the amount is $7,117. If your vehicle is worth less than that amount, you will be able to keep it. If it is worth more, then you will be allowed to keep it if you pay the LIT the difference between the vehicle value and the exemption amount. For example, if your vehicle is worth $9,000, you will pay $1,883 to keep your vehicle in Ontario.

What happens to my car in a Consumer Proposal?

A Consumer Proposal is an alternative to Bankruptcy. You will also work with an LIT if you choose this option to repay your creditors through a monthly debt payment you can afford. A Consumer Proposal is a more flexible way to repay your debt, and it may be a better option for keeping your vehicle and any other property you may want to keep — however, the majority of your creditors must agree to your Consumer Proposal before you proceed.

If you file a Consumer Proposal, you will be able to keep your vehicle as long as it does not have a financing agreement or lease — no matter the value of the vehicle.

If your vehicle is subject to a financing agreement or lease, then you must keep the financing or lease payments in good standing so that the creditor does not take action against the vehicle.

Know your options

Prior to filing for Bankruptcy or a Consumer Proposal, you have the option to return your financed or leased vehicle if you are finding it too stressful to stay on top of your payments. The LIT will include any remaining payments as a creditor in the Bankruptcy or Consumer Proposal if you make the decision to return your vehicle.

If you are struggling with debt, don’t hesitate to reach out for help. MNP Licensed Insolvency Trustees support people in situations like yours each day and can provide you with guidance if you are thinking about filing a Bankruptcy or Consumer Proposal. We can answer your questions about whether or not you will be able to keep your vehicle, help you understand your options, and support you through your journey towards a debt-free future.