Contrary to popular belief, the vast majority of Canadians who file bankruptcy can keep their car or vehicle. While many people think that filing bankruptcy means that they lose everything, this could not be further from the reality. When filing for bankruptcy, whether you can keep your car or not will depend on a few variables. These include whether or not you own your vehicle, the value of it, and whether you are leasing or financing it. Many Canadians need a car to get to work, and so all provinces have laws that permit a vehicle up to a certain dollar limit as a non-exempt asset. In this article, we explain the variables and scenarios as to whether or not you can keep your car. So, can you keep your car when you file bankruptcy?
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.
|Alberta||Up to $5,000|
|British Columbia||Up to $5,000 ($2,000 if behind on child support payments)|
|Manitoba||Up to $3,000 – must be for business or travel to work)|
|New Brunswick||Up to $6,000 if used for work|
|Newfoundland||Up to $2,000|
|Nova Scotia||Up to $6,500|
|Ontario||Up to $7,117|
|Prince Edward Island||Up to $6,500 if used for work – if not, up to $3,000|
|Saskatchewan||Up to $10,000|
|Northwest Territories||Up to $6,000|
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.