What Happens To My Car If I File For Bankruptcy?

| Category: Bankruptcy FAQ | What You Keep or Lose
Category: Bankruptcy FAQ | What You Keep or Lose | (32) comments

Unless you live in a city with access to public transit, a car or truck may be essential for you to get to work. So what happens to your car if you go bankrupt in Ontario?

Exemption Limits For Your Car

car in bankruptcyIn Ontario (the rules are different in every province), bankruptcy exemptions permit you to keep your vehicle if you go bankrupt, provided your car or truck is worth less than $6,600, and there are no loans or liens registered against it.

If your motor vehicle is worth more than $6,600, you would be required to pay to the trustee the amount over that limit. For example, if your car is appraised at $8,600, you would be required to pay $2,000 into your bankruptcy estate to keep your car when you go bankrupt.

Secured Car Loans or Leases and Bankruptcy

If you lease a car, or there is a loan or lien registered against your vehicle, and if the loan is for as much as the vehicle is worth, the trustee won’t take your vehicle. You have two choices:

  1. If your payments are up to date, you may continue to make your payments and keep your vehicle in accordance with the terms of your original loan or lease.
  2. Your other choice (whether the payments are up to date or not) is to stop making the payments and surrender the vehicle to the lender.  If you stop making payments prior to filing bankruptcy and surrender the vehicle, any resulting shortfall will be included in your bankruptcy.

Can You Keep Up With the Payments?

If you have expensive car payments each month, and if those payments are the cause of your financial problems, it may be wise to surrender the car to the lender before you go bankrupt, even if your payments are up to date. Bankruptcy should be a fresh start, and keeping high car payments may not be a fresh start for you.

Your Ontario bankruptcy trustee can help you analyze your situation and help you decide whether or not to keep your car if you file for bankruptcy in Ontario.

Leave A Comment

  1. nicole

    I’m currently in a consumer proposal. At the time when I filed, I did not include my car which was financed. My car was reposessed last month and I couldn’t afford to pay to get it back and be able to keep up with my monthly payments. The is scheduled to be auctioned next week and then I’m assuming they will be coming after me for the difference (which I don’t have the means to pay) What are my options?

    Reply
  2. J. Douglas Hoyes

    You are correct; they will pursue you for the shortfall. Your options are:

    1. negotiate a payment plan with them for the shortfall amount. For example, if the shortfall is $5,000, perhaps the lender will agree to take payments of $500 for 10 months, or whatever you can negotiate.

    2. if a payment plan is not possible, you could continue with the proposal, and wait until they take legal action against you for the car shortfall. If your proposal is completed by the time that happens, you may have the funds to make payments at that time.

    3. if the shortfall is large, the final option may be to stop making payments on the proposal, and file bankruptcy, which will include the shortfall on the vehicle.

    The correct answer will depend on the amount of the shortfall, so I suggest you discuss this with your consumer proposal administrator or a bankruptcy trustee.

    Reply
  3. Dinah

    I claimed bankruptcy 6 months ago and unfortunately got into a car accident the following month and had to get a new car loan through a high interest lender with a lien.
    I am no longer able to pay the payment ( I am cause I don’t not want people chasing me) along with my other monthly commitments. HELP.
    What does a person do if they can’t afford to keep up while in a bankruptcy!!!
    If my car is under the $5650 do I get to keep it and if it’s over the amount is the difference rolled into my bankruptcy and my bankruptcy monthly payment increased?
    Thank your in advance for your advice and help 🙂

    Reply
  4. J. Douglas Hoyes, Trustee

    Hi Dinah. If you are bankrupt you should discuss this with your trustee, since only your trustee has all of the facts of your situation. I can only give you a general answer, which is this:

    If you have a secured car loan, your choices are to continue to pay the loan, or surrender the vehicle. If you surrender the vehicle the lender will pursue you for the balance owing on the loan (because the loan was taken out AFTER the bankruptcy started), so you will have to make payment arrangements with the lender. Again, I suggest you discuss the specifics with your trustee.

    Reply
  5. Daniel C.

    Hi
    I’m confused – could you please give me some direction? I owe $7000 on my car which is worth approximately $12000 – $14000 depending on who you ask.
    I work almost completely out of town and public transportation isn’t going to allow me to keep my appointments and hence, my job.
    If I do have to declare bankruptcy, can I keep this car?
    As I read it, the answer is “yes”, I’ll just have to pay the difference of $5000 – $7000 (depending on the vehicle’s appraisal?)
    My financial problems are not because of my car – significant other debt (health care)has dragged me down.
    I would very much appreciate your advice with this question.
    Thank you in advance!

    Reply
  6. Samantha

    I purchased a car 3 years ago with my then husband. We got a loan (all in my name, of course – my credit was stellar & his … wasn’t!) for the car, but he was making the bulk of the payments. (He earned more than double my salary.)
    Flash forward & he’s gone. He’s dumped alllll of the bills on me ($25k) & I’m very likely going to have to declare bankruptcy.
    So here’s my worry about the car. The one we picked is holding it’s value well! It’s currently worth about $12000 used. (That shocks me!) But I need a good, reliable car. The other thing is my ex agreed to one of those weird post-recession financing deals that included a BALLOON payment at the end of five years. I think another $7000 is due then.
    So if by some miracle I get to keep my car & go bankrupt, that means in 2 years I’m going to have to have CASH lying around to pay off the balance? ‘Cause financing that last piece won’t likely be an option…

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi Samantha. You are correct. You can file bankruptcy and keep your car, provided you continue to make the secured loan payments on it. However, whether or not you should keep it is another matter.

      If the car is worth $12,000 today, and you have two more years of payments on it, plus a final $7,000 payment, only you can decide whether or not it is worth it to keep it or not. For example, if your loan payments are $400 per month for the next two years, that’s $9,600, plus the $7,000 balloon payment at the end, for a total of $16,600 in payments, for a car that today is only worth $12,000.

      You can keep the car, but in my example you are paying $16,600 for a $12,000 car. Or, you can surrender the car when you go bankrupt, and owe nothing more, but of course then you don’t have the car, so you will want to arrange alternate transportation before you declare bankruptcy.

      Your trustee can explain in more detail at your no charge initial consultation, and help you explore your options.

      Reply
  7. J. Douglas Hoyes, Trustee

    Hi Daniel. Here’s how it works. Let’s assume your car is appraised at $12,560, and there is a loan, secured by the car, of $7,000, so the net realizable value of the car is $5,650. In other words, if you sold the car and paid off the loan you would be left with $5,650, which is the exemption level in Ontario. In this example you could keep your car if you declared bankruptcy, provided you continued to pay the secured car loan.

    If the car was worth $12,560 and there was no loan against it then you are correct, the first $5,650 is exempt, so to keep it if you filed for bankruptcy in Ontario you would pay the difference, $7,000, to keep the car.

    I suggest you talk to an Ontario bankruptcy trustee who can explain how to get an accurate appraisal, and how to determine whether or not the loan is secured by the car.

    Reply
  8. David

    I am currently financing a vehicle. I owe about 10 grand left on it. It was appraised for about 10 and a bit higher. I am looking at getting a new vehicle. I am trying to decide whether to lease or finance this new vehicle in the event that I had to claim bankruptcy next year. My credit is currently perfect with minimal debt however something has come up that may require me to have no choice but claim bankruptcy.
    I read some information that if my car was leased than it could not be taken away from me. Is that correct? I am really confused to how this works. If my car was financed than it could be taken away? Please let me know. I have read the website clearly as well as others so I am aware of the information given, however I am still confused.
    Please explain.

    Reply
  9. michael

    I am 67 ,recently laid of from work. I have opportunity to move in with family member
    but its in a remote area ,since car is very old ,would need to replace with something
    more relaible. My cc debt is rather high but making all payment, would still need to pay rent as before. I can last for maybe 6 to 8 months before my bank balance becomes very low.
    I would probably not pursue another job , ei should be starting i think this month.
    If I purchase car used of course. and decide to go bankrupt or settlement.
    would the newer car be at risk thanks Mike

    Reply
    1. J. Douglas Hoyes, Trustee

      If you file bankruptcy in Ontario you are permitted to keep one motor vehicle worth up to $5,650, so as long as you purchased a car worth less than that amount from your savings you would not lose it if you filed bankruptcy.

      Reply
  10. Cindy O'L.

    What happens when a secured vehicle loan is in joint names? My son has a disability income but somehow was able with his wifes signature (who didn’t work), to obtain a $23,000 car loan! He must surrender the vehicle now because he has more debt than he has income from trying to borrow money to make car payments…and cannot make anymore payments. If he surrenders the vehicle, will claiming bankruptcy wipe out the remaining loan amount although it is in her name too? (His wife has forced him out of his home and is suing for support. ) She has only social services income. The car loan is in both names but the car is only in his name. Thank you.

    Reply
    1. J. Douglas Hoyes, Trustee

      If a loan is co-signed by two people, both people are responsible for the loan.

      So, if one person goes bankrupt and surrenders the car, the car loan lender can pursue the co-signer for the balance owing. Since his ex-wife is on social services and doesn’t have any wages to garnishee, they may not be able to get any money from her, but they could still pursue her if they decide that’s the best course of action for them.

      Reply
  11. marina

    I have being the only income earner in my family for several years. Couple months ago I have invested all my savings plus money from a friend to open a business for my husband. The business doesn’t go well, each month I have to bring about $2,500 from home to keep it going. Although the business is incorporated, I had to sign an indemnity agreement with the landlord which will force me to continue to pay the rent until the lease expires in case I close the business before that term. Meanwhile I have used almost all the money available on my personal credit cards for the business. I am at the point where I am considering filing for bankruptcy for both business and personal, but I am not sure if the landlord can come after me for the rent regardless.

    Reply
    1. J. Douglas Hoyes, Trustee

      In most cases a business bankruptcy is not necessary. If the business was to close, with no assets, the landlord could pursue you for your personal guarantee of the lease. If you can’t reach a settlement with the landlord, a personal bankruptcy would be an option, and the amount of your personal guarantee would be included in the bankruptcy.

      Reply
  12. Jhenono

    Hi there I finance a car just on my name but the car register to my husbands name . I filled for consumer proposal but the trustee told me that will include the car in consumer proposal but as I knw the car loan is secured. I want to keep paying it because that’s not the cause of my debt and my family is using it as means of transportation

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi Jhenono. If the car loan is not paid, the finance company will take the car, so since the loan is secured to the car, either you or your husband should make payments on the loan if you wish to keep the car.

      In all consumer proposals all secured loans are listed in the consumer proposal, even though they continue to be paid, so they are not not part of the distributions in the proposal. Your proposal trustee can provide more information if required.

      Reply
  13. TJ

    Can I purchase a car before I file bankruptcy since my current vehicle died.
    How do they come to a value of the vehicle?
    For instance if I purchase a 1997 Cadillac Elderado with only 100,000 kms for $4000, will they honour hat I paid for the vehicle?

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi TJ. Yes, you can purchase a car before filing bankruptcy. Under Ontario law you are permitted to keep one motor vehicle worth up to $5,650. So, if you buy a $4,000 car, and it’s your only motor vehicle, and you paid cash for it, you can keep it.

      As for valuation, the trustee will determine what is reasonable. If you have proof that you paid $4,000 for it from a third party, that should be sufficient to prove it’s value. If the trustee has any questions, they can check the black book value (although black books generally don’t go back to 1997), or they can have you get an independent appraisal, although that shouldn’t be necessary in your example.

      Reply
  14. J Kim

    I filed for bankruptcy at the end of March 2015. My vehicle was only worth 2500 so I was able to keep it. Am I allowed to purchase a new vehicle after I filed for bankruptcy thats over the 5650 amount during bankruptcy or no? another scenario, am I allowed to purchase another vehicle under 5650 and keep both vehicles?

    Reply
    1. J. Douglas Hoyes, Trustee

      Yes, during a bankruptcy you are permitted to make purchases, provided you have the money to do it. If you were to go out tomorrow and buy a $50,000 car for cash, it’s likely that your bankruptcy trustee or one of the creditors would question where you got $50,000 while you were bankrupt. My advice would be to discuss this with your trustee, since the answer may depend on your situation, and on the province in which you reside.

      Reply
  15. tim

    Just going through some things and need some advice. I owe about 8000 on my car (bank loan) and another couple thousand in bills that my x racked up that are all in my name and have gone to creditors. I had to quit my high in paying job to stay closer to wear I live. I feel like I can’t stay a float. I also own another vechile that is paid off, would I loose that through all this. What would you say is my best option here.

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi Tim. I can’t give you a precise answer without more facts, like your monthly income. If the car was already repossessed and the bank is now pursuing you for the $8,000 shortfall, and if you can’t afford to pay them and are worried about your wages being garnisheed, you need to contact a licensed Ontario trustee who can crunch the numbers with you and decide if a consumer proposal, a personal bankruptcy, or some other option is best for you. In Ontario you can keep one paid off motor vehicle worth up to $5,650 if you go bankrupt, so if you only have one car that’s not worth much a bankruptcy may be an option.

      Reply
  16. Cathy

    I will probably have to do a bankruptcy soon. My car is 15 years old but it’s still running. My mother has a offered to give me her car (worth about $4000) when she buys her next car sometime in the next two years. If my car dies during my bankruptcy and my mother gives me her car, will it be considered a gift and taken away from me, or will it be considered my vehicle that I get to keep?

    Thanks!

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi Cathy. This is a question that you should ask your trustee, because they will be the person making the actual determination.

      In general terms, you are permitted to keep one motor vehicle worth up to $5,650. If your car dies and your mother gives you a $4,000 car, in most cases the trustee would consider that car to be exempt and would not consider it to be a gift, because it does not have great value. However, again, you want your trustee to confirm this for you in advance, because they will be the one determining the value of the car, and whether or not it is valuable enough to be an issue.

      Reply
  17. Justin

    Seriously thinking filing for Bankruptcy. What happens when a secured vehicle financed has been in an accident? Amount owing for vehicle is approx $31,000.00 with car proof of approx $12,000.00, leaving the vehicle to be worth approx $7,000.00. Paying almost $700.00/mth. with no possibility of getting a new vehicle for the next approx 4 years while I am already in a DMP for approx $15,000.00, paying $370.00/mth. If I surrender the vehicle, will claiming bankruptcy wipe out the remaining loan amount?

    Reply
  18. Erica

    My husband and I met with a bankruptcy/consumer proposal trustee yesterday. We are even more confused as what we should do, as we do not want to lose our children’s RESP’s. But going forward know that we can’t pay all of our debt and live.

    We have one vehicle that the trustee valued at $12,000 (we owe 32,000)
    Another vehicle that the trustee valued at $25,000 ( we owe $59,000)
    Student Line of Credit $9,400
    Bank Loan $15,000
    Parents $20,000
    Our mortgage is currently $269,000 (our house is up for sale, as my husband has been transferred 800km away) It was listed at $319,900 but our property assessment $258K
    My husband has already moved, and we are trying to look after two households. But when I move we will lose my $80,000/year job. My husbands salary is $58,000.

    Should we claim bankruptcy, do a consumer proposal or me not move??

    Thanks for your help on this matter

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi Erica. As to whether or not you should move, I can’t advise you on that, since it’s a personal decision, with many non-financial aspects. Part of the decision will depend on what type of job you can get if you move.

      As for a bankruptcy or a consumer proposal, the biggest disadvantage for you in a bankruptcy is surplus income. In simple terms, the more you make, the more you pay. So, if you make $80,000 and your husband makes $58,000, you would have high monthly payments to make each month in your bankruptcy. For that reason a consumer proposal may be a better option, since although you will pay about the same or slightly more than in a bankruptcy, you can spread the payments out over a longer period, making the monthly payment significantly lower.

      My advice would be to decide where you are going to live, based on your family situation (not just money), and then from there make the decision on how to deal with your debt. If you end up moving and earning significantly less, a bankruptcy may be an option in the future.

      If you are still confused, I suggest you book another meeting, either with the same trustee or with a different one to get a different perspective.

      Reply
  19. Ambre

    Hi there,

    I filled for bankruptsy October 2014. I have not neen discharged yet. I had some assets liquified to pay what my trustee said i had to pay back. All monies i owed were paid. I am basically waiting to be discharged. I am leaving my relationship with my common law partner. My ex’s mother wants to purchase a used car for me. The total after taxes is 12,970. If my ex mother in law purchases the car for me, and the car is in my name….am I allowed to do this? She would be paying for the car out right but she wanted the car to be in my name. I need a safe reliable vehicle to get to and from work, also to get my son to and from school and hockey games and practices. Any help you could give would be appreciated. Thanks

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi Ambre. This is a question your should ask your trustee, since it is your trustee who would have to determine whether or not an asset is exempt from seizure by the trustee. This car would be more than the $6,600 car exemption limit, so it could be at risk. The safest option is to wait until you are discharged. If that is not possible, another option is to have your ex mother in law lend you the money to buy the car, and then register a lien on the car, just like a bank would do if they lent you the money. She would do this through Service Ontario. Your trustee can explain the options in more detail.

      Reply

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