Can I keep a car if I file for bankruptcy?

“Can I keep a car if I file for bankruptcy? Will I lose it even if I’m making my car loan payments on time? Or what if I own the car free and clear?”

When you meet with a Licensed Insolvency Trustee for your initial assessment, he’ll determine your vehicle’s fair market value (“FMV”) and the balance you have left on the loan. He’ll also determine if the financial institution that financed the loan (“the secured lender”) has registered a lien against the vehicle as security for that loan.

FMV less than exemption limit

In Ontario, the exemption limit for a personal use vehicle is $7,117. In this case, your Trustee won’t have an interest in your vehicle. However, if there’s a loan against your car, you’ll need to continue making your car loan payments to the secured lender if you want to keep it. If you stop making payments, the secured lender will be in its rights to seize the vehicle.

FMV more than exemption limit, loan greater than FMV

In this case, your vehicle has no equity. “Equity” is the difference between the value of an asset and the amount owing on the loan secured by that asset. If your vehicle has no equity, then the Trustee will have no interest in your vehicle. Again, you will have to continue making your car loan payments to the secured lender if you want to keep the car. If you stop making payments, the secured lender will be in its rights to seize the vehicle.

FMV more than exemption limit, loan less than FMV

In this case, your vehicle has equity. Your Trustee would be required to realize on the equity in the vehicle because it is an asset which must be realized for the benefit of your creditors.

In this case, your Trustee has two options to realize on the vehicle’s equity:

• • Sell the vehicle, pay off the secured lender from the sale proceeds and deposit what’s left over into his trust account for the benefit of your creditors; or
  • Allow you to keep the vehicle, subject to you paying him the equity in the vehicle. You would be in effect “buying out” the Trustee’s legal interest in your vehicle.

For example, if your car had a value of $25,000.00 with $10,000.00 left on your car loan, the Trustee would require you to pay him $8,400.00 in order for you to keep your car – calculated as $25,000 minus the $10,000 loan balance minus the $7,117 exemption limit. In most cases, the Trustee will allow you to pay the $7,883.00 in monthly installment payments. Also keep in mind that in addition to paying the Trustee, you will need to continue making your car loan payments to the secured lender.

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