What happens to my car if I file bankruptcy?
In Canada, very few persons who file for bankruptcy lose their car. Losing your car is not an option because you need it to get to work. Every province has a law that prevents the trustee from seizing any vehicles valued up to a specific amount. When determining what happens to your car after declaring bankruptcy, we consider two crucial issues:
"What is your car worth?" will be the first question posed to you.
You must get the vehicle valued in order to ascertain this. The majority of trustees are willing to accept an independent value of opinion, or the judgment of a person who is qualified to sell cars or value cars, who is not related to you or a friend, and who is willing to write out a letter outlining what they believe the fair market value of your car to be. Fair market value is the price that a stranger would offer for your car.
"Is your car financed, or do you have a clear title to it?" will be the second query.
Clear title signifies that your car is free of liens or other issues. Your car being pledged as security for a loan is referred to technically as a "lien." What this means is whether your car is financed, leased, or whether another creditor has filed a secured claim against it.
There are ways that may let you keep your car in bankruptcy, regardless of its worth. In addition, you have the option of keeping or returning a financed or leased vehicle based on your financial situation.
Keeping a vehicle that you own outright when you file bankruptcy
In Ontario, you can keep any motor vehicle worth up to $7,117 when you declare bankruptcy.
Most vintage cars are eligible for this exemption. To establish whether your automobile or truck will be treated as property in your bankruptcy or whether it will be covered by the provincial exemption limit, your trustee will consult what is known as the black book value of your vehicle.
You can propose to "buy out" the realizable portion from your trustee throughout the course of your bankruptcy if you own an automobile outright and its fair market value exceeds the exemption threshold.
You would be required to pay your trustee $1,400 if, as an example, you owned a car valued $8,517. You might accomplish this by adding extra payments totaling $156 during the course of a normal 9-month bankruptcy. If that monthly cost is too much, discuss a consumer proposal with our trustees.
The restrictions of this exemption let you to retain one vehicle. A consumer proposal might be a better choice if you own multiple vehicles and want to keep them all.
What happens to a leased or financed car in bankruptcy?
Unsecured debts are dealt with in bankruptcy in Canada. If you finance your vehicle through a lease or loan, the debt is regarded as a secured debt.
If you finance or lease an automobile and declare bankruptcy, you can continue to drive that car as long as your lease or loan payments are current.
However, bankruptcy won't prevent your car lender from repossessing your car if you fall behind on your payments.
What if you owe more than fair market value or you can’t afford the payments?
To avoid paying too much for the car if you have a sizable deficiency, it would be wise to simply give it back to the lender when you declare bankruptcy. You have the option of returning the vehicle to the lender if you believe your auto loan or lease is excessively expensive and you are unable to make your payments.
In any scenario, you have to give the car back to the lender before filing. If you do give the car to the secured lender, any shortfall that arises from the sale of the car is taken care of as part of your bankruptcy.
In exceptional cases, borrowers would occasionally use their car as security for a larger consolidation loan. This is a little more involved, but if it makes sense, a trustee can advise you through your alternatives and help you keep the car.
File a consumer proposal to keep your car and other assets
An insolvency is not a consumer proposal. You offer to settle a debt in a proposal by paying back a portion of it. Your non-exempt assets that you own have an impact on whatever offer you make. A consumer proposal, on the other hand, allows you to keep all of your possessions, including your house and automobile.
It might make sense more clearly if you:
- Own a variety of cars
- Possess a vehicle valued higher than the permitted limit
- Able to afford to offer your creditors a settlement.
