Motor Vehicle Loans & Leases

Having the use of a car or truck may be essential for you to get around. Many people are worried that they will lose their vehicle if they file personal bankruptcy.

In Ontario if you file for bankruptcy, you are can claim as exempt from seizure one motor vehicle with a value of up to $6,600, provided there are no loans or liens registered against it. You can confirm if there are loans or liens registered against the automobile by obtaining a used car package at a Ministry of Transportation office or by conducting a Personal Property Security Search on line.

If you own more than one motor vehicle and you wish to keep other vehicle(s) then a value will need to be established in order for you to pay the bankruptcy estate the fair market otherwise the trustee will have to sell the vehicle(s).

Car loans

If your motor vehicle is worth more than $6,600 (and there are no loans or liens registered against it), you would be required to pay to the Trustee the full value of the vehicle or surrender the motor vehicle to the Trustee.

If there is a loan or lien registered against your vehicle, and if the loan is equal to the value of the vehicle, the Trustee will not take your vehicle as long as the lender is willing to continue with the loan which is in most cases. It is up to the lender to decide whether or not you can keep your vehicle by continuing to make the loan payments since generally insolvency proceedings constitute default under the loan agreement.

Some lenders are not concerned if you file for bankruptcy, as long as you continue to make your monthly payments. However, others may take your vehicle on the filing of a bankruptcy, even though your payments are current. This rarely happens but it could and it may be be advisable to contact the lender before filing for bankruptcy to confirm that they will let you keep the vehicle.

If you are currently leasing a vehicle and you declare bankruptcy, will you lose your leased vehicle?

In most cases, the answer is no, you will not lose your leased vehicle if you go bankrupt. However, most of today’s vehicle leases have standard insolvency clauses that allow the lender the option to repossess your vehicle in the event of a bankruptcy, regardless of whether or not your payments are current. The reality is that most lenders don’t want your car, but instead would rather continue to receive your monthly payments. However, if your vehicle payments are in default then the lender will likely choose to seize your vehicle.

Can you afford to keep your vehicle or should you consider obtaining another vehicle?

Whether you have a car loan or lease there are monthly payments that must be made to keep your vehicle. You need to carefully examine your situation in order to determine if keeping your vehicle makes financial sense. If you are going bankrupt because you have accumulated debt as a result of more money going out every month than is coming in, then you need to reduce your monthly expenses. One option is to surrender your vehicle and eliminate your monthly loan/lease payments, which will then make it easier every month and any resulting shortfall in the loan/lease will be included in your bankruptcy.