What happens to my vehicle in a consumer proposal or bankruptcy?

If you’re considering the possibility of filing a consumer proposal or declaring bankruptcy, you should be aware that assets such as vehicles are handled very differently in those two procedures. In a consumer proposal, if you own the vehicle free and clear, you simply keep it. If you still owe money on the vehicle, you can keep making the payments. Either way, your trustee has no interest in the vehicle. The value of the vehicle will be considered when determining an offer to your creditors.  In a bankruptcy, however, it’s a little more complicated.

Depending on the province in which you live, you are allowed a certain number of exemptions when you go bankrupt: these are assets you’re allowed to keep in order to help you make a fresh financial start. In Ontario, the allowed exemption for a vehicle is $5,650. If you own your vehicle outright (with no loans owing on it), and the value is higher than the allowed exemption, you will have to either turn the vehicle over to the trustee or make arrangements to pay the difference between the allowed exemption amount and the value.

If you still owe money on your vehicle, the exemption applies to your equity. For example, if you have a car worth $15,000 and you still owe $10,000, your $5,000 equity in the vehicle falls within the allowed exemption. In this case, your trustee would have no interest in the vehicle, and in most cases, it’s possible that your creditor will allow you to continue making your loan payments in order to keep the vehicle. Before you make the decision to continue making any such payments, however, you need to talk to your trustee about whether it’s in your best interests to do so, or if making a true fresh start means it would be better to let the vehicle go.

As a final note, if your vehicle is necessary to your work, you may be allowed an additional exemption. Again, this is something your trustee can advise on when speaking with you.

To find out more about your options with regard to your vehicle and/or other assets in a consumer proposal or bankruptcy, call today for a free, no-obligation consultation with one of our insolvency experts: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926 or book online.

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