Can I keep my car in a bankruptcy?

This is a common concern to many individuals considering bankruptcy as a vehicle is needed to travel to work in order to earn an income. In most cases, the answer is yes.

In Ontario, there is an exemption for you to retain a personal vehicle up to a liquidation value of $5,650. If you own your car free and clear, with no liens, and its fair market value is less than $5,650, then you can keep it without penalty. If the value exceeds $5,650, then you will have to pay the difference to the Trustee in bankruptcy to retain the vehicle.

If your car is held as security for a loan and the creditor has registered their security, then you must continue to pay the secured creditor in order to keep the car. If there is value to your vehicle above the $5,650 exemption mentioned above, then you must continue to pay the secured creditor and pay the excess value to the Trustee. A car lease is treated in a similar manner.

Legislation was amended in 2009 to state that a secured creditor cannot demand repayment of your car loan simply because you filed for bankruptcy. You should ensure that your payments are up to date before filing for bankruptcy and that you are not late/delinquent in any future payments.

You should consider if you can realistically afford to keep your car. The cost of gas, insurance, maintenance and monthly payments to the secured creditor may be too much to handle. It might be more prudent to surrender your car, if it’s not needed.

Also, if you owe far more than the vehicle is worth, which can be the case if you‘re in a high-interest car loan, it might be better to surrender it and purchase a less expensive vehicle. Remember, the main reason to file for bankruptcy is to get a Fresh Start. It may not be wise to continue to over pay for a car.

The rules may seem to be confusing. Your best alternative is to contact a Trustee in bankruptcy to review your personal situation in detail.


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