Car Loan Debt Relief in Canada
The stress of ensuring you keep up payments on a vehicle can be overwhelming, particularly when you rely on your vehicle for work or family purposes. Vehicles can be a big expense, particularly when they require upkeep, and it often takes years to pay off a car loan fully.
If you are unable to stay current on your car or vehicle repayments, it is possible that your creditor may repossess your vehicle to make up for the payments they are missing. Below, we discuss your options regarding car loan debt relief, and how to ensure you keep your vehicle.
How do you get into car loan debt?
Cars are generally expensive to upkeep, and often on top of a car loan, there are interest payments too. Various factors in life can suddenly make these payments unaffordable. Perhaps you suffer a loss of employment, unexpected medical bills, or even a divorce that impacts your financial circumstances. Another way car loan debt can creep up is when you owe more for your car than it is actually worth. This can often happen with brand new or luxurious vehicles depreciating with use. In these situations, it is important to know that it is always possible to gain car loan debt relief.
How to avoid car loan debt
If you are worried about car loan debt becoming overwhelming and growing out of control, the first thing to do is to have your car valued before making a decision. Value is based on factors including make, model, mileage, and car features. Once you have a vehicle valuation, calculate what you believe to be your loan payments including any interest, and determine the car loan affordability in comparison to your income. If your loan payments are either looking unaffordable, or the payments are worth more than the vehicle itself, it is time to seek car loan debt relief. Book a free consultation with one of Spergel’s experienced Licensed Insolvency Trustees for advice.
What is vehicle repossession?
Repossession can occur for either a car loan or a vehicle lease. For leased cars, if you fail to stay current on your payments, the lender may seize the vehicle. If you have a car loan for a purchased vehicle, your lender may register a lien against your car to guarantee payment. If, therefore, these car loan payments are not met, your vehicle may be reclaimed in an involuntary repossession. If you know you cannot make your payments, it is also possible to willingly surrender your car in a voluntary repossession.
It is crucial to note that repossession does not remove your requirement to repay the car loan or car lease agreement. Once your car has been seized, it is sold or auctioned, and the sale total will be taken away from your remaining balance. Repossession costs, interest, and late payment fees will be added to what you owe, which then becomes an unsecured debt. At this point, you should contact a Licensed Insolvency Trustee to discuss your options for gaining car loan debt relief.
What to do after vehicle repossession
If your car has been repossessed, or you simply feel that your car loan debt has become overwhelming and you want to walk away, there are car loan debt relief options for you. The best step is to contact a Licensed Insolvency Trustee to discuss your financial circumstances. At Spergel, unlike other trustee firms, you will receive your own trustee to walk you through each step of the process. To gain freedom from the unsecured debt you may have left over from a repossession, the good news is that you can take two legal pathways to eliminating your debt:
Filing a consumer proposal for car loan debt relief
In Canada, a fair proportion of insolvencies involve car loan debts, and Canadians are more frequently looking to consumer proposals to gain debt relief. A consumer proposal is a legal form of debt settlement, whereby a Licensed Insolvency Trustee will negotiate with your creditors on your behalf to reduce your debts by up to 80%. You will have one manageable monthly payment, and all other car loan debts will be cleared, while you are still able to keep your assets.
Filing bankruptcy for car loan debt relief
While filing bankruptcy should be a last resort when it comes to car loan debt relief, it can be a suitable option if you are also struggling with other overwhelming debts including credit card debt or tax debt. Bankruptcy is the process of reassigning your non-exempt assets over to a Licensed Insolvency Trustee. They will then use these to go towards the repayment of your debts in exchange for clearance of any remaining debt from your creditors. Bankruptcy also generates an automatic stay of proceedings, protecting you from your creditors.
How to avoid car repossession
There is only really one way of avoiding car repossession – by making your contracted car payments to your lender on time. Negotiating a new payment plan would likely mean you still need to catch up on arrears and pay any recovery fees. Even filing bankruptcy cannot stop a repossession, because bankruptcy covers unsecured debts (not secured debts, which are those tied to an asset). If, however, you have other unsecured debts that are becoming overwhelming and unmanageable, it is still possible to gain car loan debt relief by clearing your unsecured debts to make your vehicle payments affordable. It is a good idea to speak to an experienced Licensed Insolvency Trustee to seek advice on your available options.
How to get out of car loan debt
There are always options for gaining car loan debt relief. Here are some of the most common options:
Sell the car
If you are able to sell the car, you can potentially transfer the vehicle contract and loan to another person. There is some associated risk with this, however, as some creditors will not allow someone else to take on the payments. You also need to ensure that you are not held responsible should the new buyer not be able to make the car payments either.
Voluntary vehicle repossession
If you are worried you may default on your payments, it is best to contact your creditor to initiate voluntary repossession. Repossession can come about if you are unable to make payments on a secured loan, and often it is best to do so willingly. Otherwise, you may find yourself subject to collection calls. It is important to note that repossession has an impact on your credit report.
Negotiate a new car loan payment plan
Most often, arranging a solution for car loan debt that works for both parties avoids the hassle of other options, including repossession or lawsuits. If your monthly car payments are too expensive, your creditor may offer you a more reasonable rate. You may also be able to put down a lump sum to pay back your car loan quicker and without accruing as much interest.
Book a free consultation
If you are struggling with car debt or want advice on how best to gain car loan debt relief, book a free consultation with one of our Licensed Insolvency Trustees. At Spergel, we have over thirty years’ experience helping Canadians become debt free, and we can help you too.