What is voluntary surrender?

Voluntary surrender of a car is when you decide to give back your car to the lender when facing insolvency. As car loan debt is a secured debt, it cannot be written off in either forms of legal debt relief (consumer proposal and bankruptcy). While this means that you may keep your car even if you file bankruptcy, it does also mean that if you struggle to make your repayments, you car could be repossessed by the lender. Voluntary surrender means that any secured debt you had in your car can be turned into unsecured debt, which you can then file as part of a consumer proposal or bankruptcy. Upon returning your car to the lender or dealership, they will sell the vehicle and send you a statement of realization. However much they made from the sale of the vehicle will be deducted from your car loan, except for any penalties, fees, and the cost associated with repossession of the car. Any amount left over is unsecured debt. While it is still a debt you will need to pay, you now have more options when it comes to gaining debt relief.

Why opt for voluntary surrender of your car in Canada?

You may be wondering why on earth anyone would want to voluntarily give up their car. There are various reasons as to why voluntary surrender can be a very positive move. Here are the primary reasons:

• You cannot afford your car payments. When being threatened with repossession while requiring your car, you may realize that keeping your car is unmanageable. You might be avoiding other debts in order to keep up with your car payments. You may have also purchased a car that is out of your price range – maybe you have had a chance in financial circumstances, or not quite run the numbers before committing. Voluntary surrender can free you from a car that you simply cannot afford.
• You have a car that is high maintenance. Cars can cost a lot of money to run, even outside the initial car loan costs. Perhaps it is continually breaking down, or you have an accident. If your car is not worth a lot, you may be pouring money into a vehicle that is not even worth it. Voluntary surrender can help you to avoid bankruptcy, and may even free you up to find a more reliable vehicle that will not cost as much to maintain.
• You want to avoid repossession of your car. Most Canadians would rather they got rid of their car on their terms if they can no longer afford it. Having your car taken away from you can have a tough emotional impact, as someone will turn up at your house to take away the car. You will not know which day or time this could be, and it is not nice for anyone to experience.
• You want to take ownership of your car debt. Returning your vehicle to the lender or dealership can feel like you are taking control over your situation, and that it is on your terms. Although it is not the easiest action to take, you will know that you are taking accountability for the situation and taking the required steps to get rid of your car debt once and for all.
• You want to save money. If you are able to survive without a car, you may be able to save thousands of dollars each year in interest on your car loan and depreciation of your vehicle alone. As secured loans cannot be cleared via debt relief, voluntary repossession can enable you to get out of your car loan.

How do you surrender your car?

There are a few typical steps to the voluntary surrender of your vehicle:

• Let your lender or dealership know that you cannot afford your car payments and you will not be able to make them
• Inform your lender that you want a voluntary surrender, and to return your car. Your lender will likely ask you to drop off the car on an arranged date, or they may be able to get somebody to collect the vehicle
• Once your lender sells the car, you will receive a statement of realization. This shows how much debt you have repaid, and the remaining amount owed where applicable. Any remaining debt becomes an unsecured debt that you will need to repay
• If you want voluntary surrender, you need to do so before you become insolvent. When filing either a consumer proposal or bankruptcy in Canada, secured debts cannot be included, only unsecured debts. This means you can include the debt to be reduced or eliminated entirely as part of your debt relief process

What are the benefits of voluntary surrender of your car?

Voluntary surrender has a number of key advantages:

• You can avoid fees that your lender might charge if they had to repossess your vehicle, which could happen at any time
• You can maintain a good relationship with your lender as you will be returning your vehicle voluntarily. They may be more inclined to keep you as a client, provided you make any repayments that are still owed
• You can avoid collection agencies. While your credit score will be impacted whether you surrender your car voluntarily or involuntarily, the damage may not be as bad if you miss fewer payments and you do not need to be pursued by a collection agency

What happens when you surrender your car?

As well as turning your secured debts into unsecured debts that can be reduced or cleared via a legal form of debt relief, voluntary surrender can have an impact on your credit report. Voluntary surrender is technically defaulting on a loan, and is therefore similar to facing a repossession. This will reflect on your credit report for a period fo time, and can hinder your ability to be eligible to secure credit in the future. When you do go to apply for credit, you will probably face a much higher interest rate on any loans or vehicles you secure in the future. For this reason, it makes sense to utilize voluntary surrender when you are insolvent and about to file a consumer proposal or a bankruptcy. You will face the impact on your credit report at one time, and you can clear any outstanding debt owed on your vehicle along with any other debts you have, like credit card debt. It can allow you to tackle all your debts at the same time.

How does a voluntary surrender affect your credit?

Since a voluntary surrender is a type of repossession as you have defaulted on a loan, your credit will be negatively impacted. This is regardless of where your surrender is voluntary or involuntary. Your credit score will be affected depending on the number of payments you have missed, and the credit bureau you check with. Your credit score will suffer due to a poor payment history based on the loan payments you have missed, and this will remain on your credit report for a number of years. The account you have associated with your car loan will also receive a credit rating of R8 when your vehicle is repossessed. The longer you spend without making your payments, the more you will be penalized and the worse your rating will become. When lenders look into your report, they will see the negative records in your credit report, and will assess how worthy you are of borrowing credit. If your lenders do not think you are worthy of credit, it will be more difficult for you to borrow funds – and when you can, they will be more expensive due to higher interest rates. At Spergel, we can help you to rebuild your credit score after a voluntary surrender.

How do you surrender a leased car?

Surrendering a leased car works a little differently to the voluntary surrender of a car that you own. When you have a leased car, you still need to make a down payment in order to cover any charges related to the vehicle like rental fees, depreciation, and interest. The primary difference when leasing a car is that at the end of the loan, you do not get to keep the vehicle. There are a few ways to break a car lease. You may be able to transfer it to somebody else, buy it out, or roll it over into a new lease. You may even be able to terminate your car lease. Some of these options could end up costing you more, and if you already have financial difficulties, this could end up making your situation even worse. It is possible to have a voluntary surrender on a leased car still – your lender will want to collect any outstanding debt that you owe, but if you are filing a legal form of debt relief this debt can be reduced or eliminated altogether.

How to keep your car when filing bankruptcy

Although many Canadians think that filing bankruptcy means you are left with nothing, including having your car taken away, this is not the case. In fact, most people who find themselves insolvent do not need to give up their cars. Most Canadians need their cars for one reason or another, and often the minimal difference in cost between their car and another may not be big enough to proceed with voluntary surrender. Thanks to bankruptcy exemptions that are in play in each province, provided your car is under a certain value threshold, you can keep your car during bankruptcy. See, for example, Ontario bankruptcy exemptions. If your car’s equity is over the exemption limit, or you own more than one vehicle that you want to keep, you can pay the difference into your bankruptcy. You could also file a consumer proposal instead in order to keep your assets. Both a consumer proposal and a bankruptcy will free up your budget by clearing or reducing your other debts. This can make it much easier to make your car repayments. Speaking to a reputable Licensed Insolvency Trustee at Spergel will help you to understand all of your available debt relief options, and to decide which actions might be best for you.

If you are finding your financial situation overwhelming and are considering voluntary surrender, you should book a free consultation with one of the experienced Licensed Insolvency Trustees at Spergel. We will review your financial circumstances and run through all of your available options. We have been helping Canadians to gain debt relief while keeping their cars, and we are here to help you too.

Why would you want to return a financed vehicle?

Of course, nobody wants to lose their vehicle if they can help it. There are, however, some reasons why you may wish to return your financed car after purchasing it, including the following:

• Making your car loan payments is proving difficult, and you are finding yourself in car loan debt
• You want to avoid involuntary repossession
• You are not happy with the vehicle you purchased
• You believe you paid too much for the vehicle and think you can find a better price elsewhere
• You do not need the vehicle any more
• You have changed your mind on the vehicle

Can you return a financed car back to the bank?

Unfortunately, returning a car you cannot afford is not quite as simple as returning a purse to the store. If you purchased a car from a dealership, the chances are you will be unable to return it for a refund. Most lenders do not accept returns in any case. This is because as soon as you drive your vehicle off the lot, it depreciates in value – particularly if it is brand new. This would mean that the lender would need to accept a loss if they were to agree for you to return it. There may be a few exceptions to this rule depending on your lender. If, for instance, you were not able to test drive the car before purchasing it, and it was bought on finance, you may be able to return it. If you quickly realize after purchasing your car on finance that you cannot afford the loan payments, your dealer may consider taking back the vehicle.

What is voluntary repossession?

If you find that you are facing financial difficulty and it is proving problematic for making your car payments, you may be able to return your car via voluntary repossession. Voluntary repossession is the process of voluntarily giving up your vehicle before you face other consequences, like bankruptcy. It differs from involuntary repossession, whereby the borrower does not wish to lose their vehicle, but where the lender has the right to repossess it in order to recoup their losses from missed payments. In order to return a car via voluntary repossession if you cannot afford to make your car payments, you can ask your lender to take back the car. This can prevent you from facing involuntary repossession. While it may seem pretty straightforward, repossession does not always cover the entire outstanding loan. The lender will often sell the vehicle to make back their losses – this amount is then deducted from what you owe. If there is still some outstanding debt owed, you will need to pay the difference.

What are the benefits of voluntary repossession?

As well as proving less embarrassing than having your car towed in a involuntary repossession, voluntary repossession has a number of other benefits:

• Avoid additional fees. If your car is repossessed, you will need to pay a fee for the repossession company to tow the vehicle away from you. This could happen at any point without prior notice.
• Maintain a relationship with the lender. As you will be returning the vehicle of your own accord, your lender will be more likely to deal with you in the future, provided you can repay your car loan.
• You will not have to deal with collection agencies. The impact of a repossession may not be so bad if you miss fewer payments via a voluntary repossession. It also means you can avoid collection calls and threats of a wage garnishment.

Does a voluntary repossession affect your credit?

Voluntary repossession will have a negative impact on your credit, as it suggests that you are unable to cope with your payments. A repossession – whether voluntary or involuntary – is considered as a default on a loan. This will be noted on your credit report, which could hurt your credit score. Generally speaking, when you default on a loan or face a repossession, it will remain on your credit report for seven years. At Spergel, our experienced Licensed Insolvency Trustees can assist you when it comes to rebuilding your credit score. There are some other drawbacks to returning a financed car to the bank. This includes cancellation fees for leaving the agreement early where applicable. You will still owe a balance too if the lender is unable to sell the vehicle at a figure that covers your outstanding loan.

How can you go about returning a financed vehicle in Canada?

Firstly, you should contact your lender to see if they will allow you to return your financed vehicle. Your lender may even agree to arrange a payment plan to help you through your financial challenges. They will likely try to help if you have found yourself out of work, had your working hours reduced, or are unable to work due to a health issue. If your payment history has been mostly on time, they will be more inclined to help you. They may allow you to skip a couple of payments and add them onto the end of the loan to provide you some temporary financial relief. Alternatively, they may extend the term of your loan to give you more time to repay your loan and reduce your monthly payments. Do note that this assistance will only help you temporarily – if your financial problems are longer term, it will not help. Voluntary surrender can help to resolve your payment challenges more permanently.

Alternative options to returning a financed car back to the bank

If returning your financed car to the bank is not an option or your lender will not allow you to return your car, there are some other options:

• Refinance your car loan. You may be able to save money by opting for a different loan, ideally with a lower interest rate. This should help to make your car payments much more affordable. Extending your loan term can also help to reduce your monthly payments, although it may mean you have more interest overall.
• Trade in your vehicle. Your dealer may allow you to trade in your car for a different model that is more affordable for you. Do note there may be some penalties for breaking out of your current car loan, but it could pay off longer term.
• Sell your car. If your lender will not allow you to return your vehicle, you may wish to sell it. This money can then go towards repaying your car loan debt.

Returning a financed car to the bank is never easy. You do have options when it comes to your car loan and no matter how bad you may feel your financial situation is, there is always a solution. Book a free consultation with an experienced Licensed Insolvency Trustee at Spergel – we are here to help you, just as we have with over 100,000 Canadians. Reach out now to learn more about your options.

How many missed payments before car repossession?

If you are leasing or financing a car or vehicle and you cannot make your payments, there are no two ways about it – you are at risk of having your car repossessed. Once you become behind on payments, your car lender will likely notify you that you have missed car loan payments. At this point, if you ignore the notices and refuse to communicate with your car lender or indeed simply cannot make your car loan payments, your lender can send a bailiff to repossess your car. How many missed payments before car repossession? This will vary from lender to lender, but in most scenarios, two or three missed car loan payments in a row will lead to repossession. Some car lenders even have technology to remotely disable your vehicle after just one missed payment. These actions are taken in order to try and recoup the car loan payments that you owe. Lenders will probably try to sell your vehicle for a market price or auction it to repay your missed payments. In some cases, there may be a deficiency when the sale does not quite cover your balance as well as the additional repossession fees, which you will need to make up. Car repossession also has an impact on your credit report, which you should note when taking out a car loan. The best thing to do as soon as you get a notice issued from your lender is to communicate with them. Booking a consultation with a reputable Licensed Insolvency Trustee is also important in order to see how you can free up your debts to make your car payments more easily.

How does car repossession work in Canada?

Car repossession laws vary slightly depending on your province of residence. In Ontario, the lender has the right to seize and sue for any overdue payments that are on the loan. In Alberta and British Columbia, there is a seize or sue law, whereby the lender can either repossess your car or sue you for the overdue amount. The creditor can determine how they would like to act, but they cannot take both options. Despite these differences between provinces, there are two types of car repossession, no matter where you are located in the country. These are involuntary and voluntary repossession:

• Involuntary repossession – this is where you miss your car payments and do not communicate with the car lender to negotiate on repayment terms, resulting in repossession
• Voluntary repossession – this is when you realize that you cannot afford your car repayments and you decide to surrender the vehicle back to the car lender. Voluntary repossession can stop further costs that can come into play with an involuntary repossession

If your vehicle is repossessed and you later decide to file for bankruptcy or a consumer proposal, you can include any outstanding car debt you have. You cannot include this debt if your car has not been repossessed as it will still be considered secured debt. This debt becomes unsecured debt following repossession, which can be included as part of a consumer proposal or bankruptcy.

How to avoid car repossession in Canada

If you are keen to avoid having your car repossessed, there are a number of actions you should take:

Communicate with your car lender

The best possible scenario for your car lender is to receive the car loan repayments that they are owed. Repossession is a last resort for them, and so they will try to avoid this if they can. After all, it is a lot of effort for them to arrange repossession, sell your car, and even to potentially sue you for overdue repayments too. Once you realize you are having financial difficulty and will not be able to make your agreed car loan payments, you should contact your lender. They may be able to negotiate on your repayment arrangement. If there is nothing they can do, it is time to move on to the next option.

Speak to a Licensed Insolvency Trustee

Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. Although debt relief is only able to clear unsecured debts, in many instances this can relieve financial pressure to help you make your car payments. Legal forms of debt relief include a consumer proposal, which can reduce your debt by up to 80%, while allowing you to keep your assets. It also includes bankruptcy, which allows you to completely clear your debt in exchange for any non-exempt assets you may have. Both forms of debt relief automatically bring about a stay of proceedings which offers protection for you from creditors, and wage garnishment. At Spergel, unlike other bankruptcy firms, you will be assigned your own Licensed Insolvency Trustee to walk you through the debt relief process, instead of passing you from person to person. They will spend time with you to understand your unique financial circumstances before advising you on the best form of debt relief for your situation.

Sell your car

If you feel that you simply cannot afford your car loan payments, it may be a good idea to sell your car or vehicle. It would be wise to do this before repossession of your car becomes an option. Selling your car or vehicle means that you can try to regain as much money as you possibly can in order to put towards your outstanding car loan debt.

Opt for voluntary repossession

Another way to avoid involuntary repossession and the associated costs is to proactively opt for voluntary repossession. This is ideal if you know you cannot afford your car loan payments. For voluntary repossession, you will surrender your car or vehicle. You should always let your car lender know before you take any action so that they are aware. You should note that if there is any deficiency between the sale price of the vehicle and what you owe, you will be responsible for making up the difference. Voluntary repossession will also have consequences on your credit report.

How does car repossession affect your credit score?

No matter whether you have a voluntary or an involuntary repossession, your credit score will be negatively impacted. Repossessions of your car or vehicle will remain on your credit report for up to seven years. The consequences of this include difficulty taking out another car loan, getting a mortgage, or gaining other additional credit. Even if you do find a creditor who is willing to lend to you, as you are higher risk, you are likely to have to pay a higher interest rate. Learn how you can rebuild your credit score.

If you are curious about ‘how many missed payments before car repossession?’ and other related topics, book a free consultation with a Licensed Insolvency Trustee at Spergel. We understand how stressful the prospect of having your car repossessed can be, and so we are here to help. We will navigate you through the journey and can help you choose a debt relief option to make your life easier.

Your car loan lender will be in contact

This first step is usually expected – you signed a contract to make car loan payments each month. If, therefore, you miss one, it is likely that your lender will want to know what has happened, and why they have not received their payment. They will probably try to contact you via telephone, email, or mail to warn you about the consequences of missing payments. If this is the first car loan payment you have missed, it is likely that your lender will give you a few buffer days. These days are for you to make your car payment to avoid penalties. It means slightly less reason to panic, although you should always try to make your payments on time wherever possible. If you are struggling with car loan debt, it is a good idea to reach out to a Licensed Insolvency Trustee for advice on how to reduce it.

You may face penalties and additional interest

This will not be the case in all situations, but should you miss a car payment, some lenders may charge a late fee. In addition to a late fee, interest will most often continue to accumulate on the unpaid remainder of your car loan. As a consequence, this can increase the overall amount left to be paid on your car loan in the longer term. If, however, you are quick to make the payment you missed, your lender may well waive the fees and interest provided you are able to make any subsequent car loan payments on time. The same goes if this is your first missed car payment – your lender is likely to be more lenient with you. It is best to be extra vigilant should this have been an accidental one-off.

Your credit score may be affected

What happens if you miss one car payment in relation to your credit score? Well, in some cases it can have a negative impact on your credit score. This is hugely variable on a few different factors. It depends, for example, on how long your credit history is, whether you have a good credit score to begin with, and how many times you have missed car payments previously. If you have a relatively good credit score, missing one car payment could cause you a drop of around a hundred points. This in itself can take several months for you to rebuild your score, so if it is not too late, it is well worth understanding the consequences of missing a car payment. If your payments are becoming overwhelming, you can choose from various debt relief options to make them more affordable.

Your car may be repossessed

As a car loan is a secured debt, it means that your finances are tied up with an asset, or a physical object. This means that should you not be able to afford your car payments any more, the lender may decide to repossess your vehicle. This is a process that would first likely mean a number of missed car payments and several formal warnings. Repossession is not something that would happen as a consequence of one missed payment, but it is important to be aware of the consequences of missing car payments. Most lenders will not choose to repossess a car until zero payments have been made for around two to three months. This can vary from lender to lender. If it does happen, it is important not to panic – there are options to keep your car by making your missing payments.

What happens if my car is repossessed?

If your car is repossessed, it is not the end! In fact, it is possible to negotiate with your lender for more favourable payments, or even a new payment plan that works better for your circumstances. A reputable Licensed Insolvency Trustee is best positioned to advise you on how to do so. There are debt relief options including a consumer proposal or even bankruptcy that may be useful if you have other unsecured debts that are making it difficult to pay for your car. Should your car continue to be repossessed without any attempt to recover it, it will be auctioned off. The amount your car sells for at auction will go towards the repayment of your loan until the entire process is complete.

How do I make my car payments more manageable?

If you are wondering ‘what happens if I miss a car payment?’, there is a good chance your car loan payments are simply too much for you. Whether you have other overwhelming debt, or have had a change in life circumstances, there are many reasons why your car loan may no longer be affordable. In some cases, it may be helpful for you to gain debt relief to make your debts more manageable. At Spergel, our Licensed Insolvency Trustees will be able to advise you as to the best possible options for you, based on your unique financial circumstances. It may also be a good option for you to sell your car for a more affordable model to ensure you avoid situations that affect your credit score, or even end in repossession.

For more advice on what to do if you have missed a car payment, book a free consultation with a Licensed Insolvency Trustee at Spergel. We will look at your unique financial circumstances and advise you on the best pathway to take. Whether you have simply missed one payment or are struggling to keep up, there is a debt relief solution no matter what your situation.

Can you keep your car when you file bankruptcy?

When determining your assets in bankruptcy, you will likely be asked two key questions:

• What is your car worth? You will need to arrange an appraisal of your vehicle, and most Licensed Insolvency Trustees will accept an independent opinion. They will likely need this formally written out, with an indication of the fair market value.
• Is your car financed or do you own it outright? If you have clear title to your car, it means there are no liens on your vehicle. If you own your car, you will likely be able to keep a vehicle as long as it is within your provincial value limits.

If you file bankruptcy, there is always a way to keep your vehicle. This of course depends on its value – if it is over the provincial limits, you may just need to pay some equity in order to keep it.

Can you keep a car that is owned outright in bankruptcy?

If your car is within the limits of the bankruptcy exemptions, you will be allowed to keep it. This is applicable to most older cars. Your trustee will review your vehicle’s value and see if it needs to be considered as part of your bankruptcy or if it qualifies as being within the provincial limit. If it is valued higher, you will have to pay your Licensed Insolvency Trustee (creditors) the difference in order to keep it. This difference is often made through monthly payments throughout your bankruptcy. Should you have any additional cars, the value of them must be paid also in order for you to keep them.

What happens to a financed or leased car in bankruptcy?

If your vehicle is financed or leased, the financing will be factored in and taken off the value of the vehicle. This in turn will determine the net value of the vehicle. Any equity will need to be paid to your trustee. Provided you are current on your car payments and will be able to continue making them throughout your bankruptcy, you can keep your vehicle. This is because any debt associated with an asset is a secured debt, separate from the unsecured debts that bankruptcy deals with. You may also decide to surrender your leased or financed vehicle before filing bankruptcy, depending on what makes financial sense for you. Should you fall behind on your payments, your lender can repossess your car, and this cannot be stopped by bankruptcy. It is a good idea to discuss your options with your Licensed Insolvency Trustee before filing bankruptcy.

Bankruptcy exemptions per province for vehicles

The table below illustrates the current bankruptcy exemptions on vehicles per province as of 2022.

Under these provincial exemption rules, you can keep one car during bankruptcy. If you have more than one car and wish to keep both, a consumer proposal may be a better option for you.

File a consumer proposal to keep your car

If your car is worth more than the provincial exemption limits, you may want to consider a consumer proposal. A consumer proposal is a popular bankruptcy alternative, and is a legal form of debt relief that essentially settles debts with your creditors. Consumer proposals can reduce your debt by up to 80%. When filing one, you will work with your Licensed Insolvency Trustee to make a settlement offer to your creditors. If they accept, you will make your affordable monthly payments until you are discharged from your consumer proposal. The advantages of a consumer proposal include being able to keep all your assets, including your car and home. For this reason, a consumer proposal could be a better option for you if:

• You own more than one car
• You own a vehicle that is valued at more than the provincial exemption limits
• You can afford to make a debt settlement offer to your creditors

At Spergel, we have a 99% acceptance rate on the consumer proposals we file. If you want to understand more about ‘can you keep your car when you file bankruptcy?’, book a free consultation with a Licensed Insolvency Trustee at Spergel. We will review your financial situation and assess your assets to help you choose the most appropriate form of debt relief for you.

How can car loans lead to debt problems?

With new, more exciting car models being released each year and increasing societal pressure, it is little wonder that more and more cars are being purchased in Canada. Not only that, but they are being purchased more often with debt through substantial car loans. According to CBC, over half of all new car loans are currently financed for seven years or longer. Long-term financing means it can take many Canadians seven years or more to repay a depreciating asset. This may be manageable as a one-off purchase, but many people want to trade in their vehicle every couple of years for a newer model. Longer loans can increase the chance of you ending up owing more than your car is worth. This in turn can cause debt to roll over, even before all the other charges like taxes, insurance, gas, and even repairs and maintenance if the vehicle is second hand. It is little surprise, therefore, that there are increasing debt problems associated with car loans across Canada. If this is you, you are not alone, and there is a debt relief solution for you.

How can you avoid car loan debt?

If you do not want to be in a situation where you can’t afford car payments, the most important thing is to consider the total value of the car in cash terms. This should be your way of thinking instead of a short term mentality, like simply how much you would need to repay each month. This short term thinking is what can eventually spiral into longer term debt. Instead, you should consider how much you can actually afford to put towards a vehicle in realistic terms. This should factor in all your other expenses too. Before you head off to purchase a car, be sure to spend some time calculating an affordable amount, create a budget, and figure out exactly what you can afford with a view to the long term. It is also important to keep your loan payment as short as possible where you can. If you cannot pay cash, the next best thing to do is put down as much of a down payment as you possibly can to shorten the terms of your car loan. This should help to make your car loan much more manageable, and less likely to lead to overwhelming debt.

I can’t afford car payments – what are my options?

If you have realized you can’t afford car payments, the most important thing to do is to speak to a Licensed Insolvency Trustee immediately. As the only professionals legally able to administer all forms of debt relief in Canada, they will offer the most authoritative advice for your circumstances. At Spergel, we will review your financial circumstances and educate you to make an informed decision that is best for you. When it comes to car debt relief options, there are several pathways that are taken most often:

Consumer proposal for car debt

Consumer proposals are a form of debt relief whereby any unsecured debt you have is reduced by up to 80% by agreeing a manageable monthly payment you can afford with your creditors. In turn, they will clear any remaining debt you have and allow you to keep your assets. Car loans are considered to be secured debts by contrast, but consumer proposals are ideal should you have other debts like credit card debt or payday loans that are preventing you from making repayments towards your car loan. Provided you can make your car loan payments, you can keep your car.

Bankruptcy for car debt

Similarly to consumer proposals, bankruptcy will only clear unsecured debt – so not car loans. Bankruptcy, however, is a great option if you are struggling with overwhelming debt which means you are defaulting on car loan repayments. As bankruptcy will cover even tax debt, it can clear any unsecured debt you have and allow you to start a fresh financial future. Once again, provided you can keep up your car loan payments, you can keep your car. Bankruptcy is ideal particularly if you have a shortfall from rolling over one car loan to another, as you can add this to your pool of unsecured debts to clear.

Refinance your car loan

If you had poor credit when purchasing your vehicle, it is likely you are paying high interest rates on your car loan. This will make your payments expensive, and they may become unmanageable. If, however, your credit score has improved over a substantial amount of time since you took out your car loan, it may be possible for you to get a new car loan with a more favourable interest rate. Check your credit score using either TransUnion or Equifax, or simply speak to one of Spergel’s Licensed Insolvency Trustees for advice on your best option. If your credit score has improved, you could potentially refinance your loan.

Sell your car

Nobody wants to sell their car unless they have to, and if you are unable to afford your monthly car loan payment, in some cases this is best. If you are able to sell your vehicle for roughly the same amount you paid for it, you will likely be able to pay off the majority of your car loan. Instead, you can find a cheaper car which will have a much more manageable monthly car loan payment that you can afford. This is much more favourable than having the bank repossess your car and impacting your credit score. If in doubt, speak to a Licensed Insolvency Trustee who understands the rules and can explain your options to you.

When does a car get repossessed?

Repossession happens for financed or leased cars when the dealership maintains ownership of the vehicle until it is repaid in full. This is part of the contract you sign at the beginning of the agreement. If you bought your vehicle, it is yours, but the dealership can register a lien on your vehicle as a way of ensuring payment. If you miss payments, they can repossess the vehicle. Legally, they must notify you that you are behind on your payments, but they do not need to let you know when they plan to send someone to take your car. If you take action, this becomes an involuntary repossession. If you know that you cannot afford your car loan, you can surrender your vehicle, also known as voluntary surrender.

What happens when your car is repossessed?

Something many lenders do not realize about their car loan is that having your vehicle repossessed does not suddenly mean that you no longer have to make car loan payments. You still have an obligation, based on the agreement you signed initially. What will happen, however, is once the vehicle has been seized, it can be put up for auction or sold. Any proceeds made will be taken away from the remaining car debt that you owe. Do bear in mind that additional charges including repossession costs, interest, and late payment fees will be added. This then becomes an unsecured debt, meaning that while you still owe your lender, you have much more freedom when it comes to your debt relief options. This will have an impact on your credit score, but here at Spergel, our experienced Licensed Insolvency Trustees will help you to rebuild your credit score. The only way to avoid repossession is to make the appropriate payments on your car loan that were agreed in the initial terms of your contract.

If you are concerned that you can’t afford car payments, book a free consultation with the Licensed Insolvency Trustees at Spergel. We have over thirty years of experience helping Canadians with car loan debt and gaining them debt relief. You will be assigned your own bankruptcy trustee who will review your financial circumstances and offer you advice on the best pathway to financial freedom.