Can I Keep My Car If I File for Bankruptcy?

We find a common question people ask is “Can I keep my car if I file for bankruptcy?” They want to know what happens to your vehicle if you declare bankruptcy. Will you lose your car in the process or will the bankruptcy trustee take it? What can you expect? The answer basically depends on two things: 1) is there a loan on the car, and 2) if there is not a loan, how much is the car worth?

If You Have a Car Loan, You Keep the Car

Most of us tend to think then when you go bankrupt, you lose everything. In Canada, reality is often a little different. This reality begins with secured debts. If you pledged something as security for loan, the asset that provides collateral for the loan is exempt from bankruptcy. It survives bankruptcy. So if you have a car loan, and your car or truck is collateral for the loan and you file for bankruptcy, the loan and the vehicle are both kept out of the bankruptcy.

If you want to get out of your car loan, you would need to make arrangements to sell the vehicle with the lender or finance company that holds the loan. When the vehicle is sold, the proceeds would be used to pay off the loan. If the vehicle sells for less than the loan amount, you would still owe the remaining balance. However, this outstanding balance would then be an unsecured debt and could be included in your bankruptcy if all this transpired before you declare bankruptcy.

If You Fully Own the Car, You Lose It in Bankruptcy If It’s Worth More Than a Certain Amount

If there is no loan or lien on your vehicle, then your bankruptcy trustee will assess your vehicle’s value. In most provinces across Canada, if you go bankrupt, you get to keep one vehicle that is worth up to a certain amount depending on your province. Here are the maximum vehicle values for the following provinces:

• Ontario: $6,600
• BC: $5,000
• Alberta: $5,000
• Manitoba: $3,000
• Saskatchewan: $10,000

If your vehicle is assessed and found to be worth more than the allowed maximum in your province, you can redeem it from being taken in the bankruptcy by paying the difference between its appraised value and the maximum limit. So if your province allows you to keep a vehicle worth up to $5,000 and yours is appraised at $6,000, you could pay your trustee the $1,000 difference. He or she would then put this $1,000 into the pool of money that they would send to your creditors. You would then get to keep your car and not lose it in the bankruptcy.

If You Go Bankrupt, Keeping Your Car Loan Could Help to Repair Your Credit Faster

While this article is just a quick overview of some of the ins and outs of bankruptcy, if you’re thinking of going bankrupt, you have a car loan, and you want to keep your car, keeping up the car loan payments through your bankruptcy and after it will help to improve your credit. Bankruptcy is one of the worst things you can do to your credit, and it takes many years for your credit to recover. However, if you have a debt – like a car loan – that keeps reporting after your bankruptcy that it is being paid as agreed, this will help to rebuild your credit after the bankruptcy.

How to Find Out More & See the Alternatives to Bankruptcy that Might Be Available to You

Most of the time when someone is experiencing financial difficulty, they think that if things don’t improve they’ll have to go bankrupt. The truth is that between financial difficulty and bankruptcy there are a lot of options. Our Credit Counsellors are experts at helping people explore these options and find the solution that will not only work the best for you today but will put you on the path to achieve you future goals. For some people, bankruptcy can prevent them from achieving future goals including some career paths. The nice thing is that there are often other options – sometimes lots of them – it all depends on your situation. The best thing you can do is make an appointment to speak with a Credit Counsellor, go over your situation with them, and see what your options are. If it turns out that bankruptcy is your best option, they’ll layout your next steps for you and refer you to a reputable trustee. We’re a non-profit service. So appointments with our Credit Counsellors are always free, non-judgmental, and completely confidential. Call us today, or chat with us online. You have nothing to lose.

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