Vehicles and Bankruptcy

One common question I receive when reviewing someone’s financial situation is “can I keep my car in a bankruptcy?” This is an important question for many people living in Kitchener-Waterloo as there are requirements for a vehicle due the geography of the area and the need to be able to get to and from work, school, stores, etc.

The answer is normally “yes” however, there are a few scenarios that need to be considered;

  1. The vehicle is owned by the individual without a lien against it, and
  2. There is a loan against the vehicle thus resulting in a lien being registered.

Vehicle is owned without a lien: For cases where the vehicle has been paid for in full and there is no loan or lien against the vehicle, Ontario law allows for a vehicle to be exempt from seizure for a value up to a certain amount. In 2015 that limit is $6,600 although it increases with inflation each year. That is, if the vehicle was sold by you today, if it is worth less than $6,600, then it is your vehicle to keep and your creditors do not have rights to the vehicle. If the vehicle is worth more than that, the difference above this amount would have to be paid to the trustee in order to keep the vehicle. Therefore you are permitted to keep the vehicle in bankruptcy in this scenario.

Vehicle with a loan/lien against it: Vehicles are typically a larger expense purchase, so most times people have to finance the purchase through a loan. The lender then has a right to put a lien on the car until the loan is paid off. This lien allows the lender to have first rights to the vehicle in the event you cannot pay for it any more. We refer to this lender as a secured creditor. If a bankruptcy is filed, you have a right to keep your payments current and on-going to your secured creditors. As long as you do not have payment problems or arrears with the secured lender, they cannot take the vehicle from you if a bankruptcy is filed as the bankruptcy laws restrict any changes to the secured agreement. Therefore, if you feel you can afford to keep the vehicle payments current, then you are allowed to keep the vehicle in bankruptcy. This is also the case for leased vehicles. If you cannot afford to keep the vehicle, you have a right to surrender it as part of a bankruptcy and then have loan balance included in the bankruptcy.

If you are experiencing financial difficulties and would like to discuss your situation and options, then call me at 519-747-0660 or send me an e-mail. I’m here to help.