Do I keep my car in a Bankruptcy?

Yes, in many situations, it is possible to file for bankruptcy without losing your car. Personal bankruptcy does not automatically mean that your vehicle will be seized or sold.

This depends on several factors, including:

• The type of agreement related to your vehicle;

• The market value of the car;

• The remaining balance on the loan, if any;

• Your ability to continue making payments;

• The importance of the vehicle in your daily life.

A car may be essential for getting to work, looking for a job, taking a child somewhere, accessing health care, meeting basic needs, or living in an area with limited public transportation. This is why the Licensed Insolvency Trustee analyzes your overall situation before determining what may happen to your vehicle.

What Happens If Your Car Is Financed?

If your car is financed, it is generally tied to a secured debt. This means that the lender has rights over the vehicle, subject to certain conditions, until the loan is fully repaid.

Bankruptcy therefore does not automatically cancel your car loan. To keep your car, you usually need to continue respecting the terms of your agreement, including making your payments as required under the contract.

If the payments are too high or if the vehicle is contributing to your financial difficulties, you may also choose to return the vehicle to the lender as part of your bankruptcy file. In this case, the vehicle is repossessed and sold, either by the Licensed Insolvency Trustee or by the creditor, depending on the vehicle’s equity.

This option can help reduce your monthly financial pressure, especially if the car payment, insurance, gas, and maintenance represent too heavy a burden.

What Happens If Your Car Is Leased?

If your car is leased, you do not actually own it. It belongs to the leasing company or to the creditor financing the lease agreement.

To keep the vehicle, you must continue to comply with the terms of your lease agreement, including monthly payments, insurance, and any other obligations provided for in the contract.

If your payments are up to date and you are able to continue making them, it may be possible to keep the leased vehicle. However, the trustee will assess whether the lease remains compatible with your budget.

If the monthly payment is too high, you may consider returning the vehicle. This decision should be carefully assessed, as it may result in a balance owing if the creditor suffers a loss after repossessing the vehicle.

What Happens If Your Car Is Fully Paid Off?

If your car is fully paid off, it belongs to you. The trustee will therefore need to assess its market value and determine whether it can be kept as part of your bankruptcy.

The fact that a vehicle is paid off does not automatically mean that it will be sold by the Licensed Insolvency Trustee. Several factors are considered, including its actual importance in your daily life.

Your car may be considered necessary if it allows you to:

• Get to work and no other transportation option is available;

• Look for a job;

• Meet your essential needs;

• Travel for health care;

• Transport dependants;

• Continue your studies or training;

• Live in an area where transportation options are limited.

If the car has significant value, an agreement with the Licensed Insolvency Trustee may be required in order to keep it. For example, it may be possible to pay an amount corresponding to the unprotected value of the vehicle, based on your ability to pay.

How Does the Trustee Assess the Value of Your Vehicle?

To determine what may happen to your car, the Licensed Insolvency Trustee must first assess its real value. This analysis is not based only on the purchase price. It takes into account the current market value of the vehicle.

Several factors may influence this assessment:

1. The make and model of the vehicle;

2. The year of manufacture;

3. The mileage;

4. The general condition of the car;

5. Repairs required;

6. Comparable resale value;

7. The remaining balance on the loan, if applicable;

8. The type of agreement: financing, lease, or fully paid vehicle.

If your car is financed, the trustee generally compares the vehicle’s market value with the balance of the car loan. The difference between the two helps estimate the vehicle’s equity.

For example, if your car is worth $12,000 and you still owe $10,000 on the loan, the equity is approximately $2,000. If the loan balance is higher than the value of the vehicle, there may be no real value to remit to creditors.

Is Your Car Protected? Review Your Situation With a Trustee

To find out whether you can keep your car in bankruptcy, you need to have your situation reviewed by a Licensed Insolvency Trustee. Every file is different: the type of agreement, the value of the vehicle, the loan balance, your monthly payments, and the importance of the car in your daily life must all be considered.

At Mallette, our advisors help you assess your options, understand the possible consequences, and choose the solution best suited to your financial reality.

Before returning your vehicle or making an important decision, a free and confidential consultation can help you make an informed choice.