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What Happens to Your Vehicle in a Consumer Proposal or Bankruptcy

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If you are exploring debt relief options, you may be concerned about how your assets will be affected. As a Licensed Insolvency Trustee, we are often asked about what happens to a vehicle in a consumer proposal or personal bankruptcy.

When meeting with us for the first time, some clients are worried they will lose their car if they pursue one of these debt relief solutions. Here’s what you need to know about what will happen to your vehicle, depending on whether you file a consumer proposal or bankruptcy.

Consumer Proposal

A consumer proposal is a popular debt relief option where you are able to retain your assets.  In a consumer proposal, you are responsible for paying a percentage of the debt you owe to your creditors. You make the payments to your Licensed Insolvency Trustee (LIT) who is responsible for distributing the money to the creditors. 

In a consumer proposal, you make an offering to your unsecured creditors.  Vehicles that are secured by a loan or a lease are generally not included unless you are willing to surrender the vehicle. 

You will need to keep up with your car payments along with your proposal payments throughout the proposal.  If you own your vehicle outright, you retain it in the proposal. 

If you file a consumer proposal but are struggling to make payments, you risk having your proposal annulled. This means you will no longer be protected from your creditors. It’s important to reach out to your LIT as soon as possible to discuss your options if you are in this situation. 

Bankruptcy

In comparison, if you declare bankruptcy you will generally be required to give up your unencumbered assets to your creditors. When filing for personal bankruptcy, your assets will be assigned to your LIT to recover debts owed to your creditors. Fortunately, certain assets are exempt from bankruptcy in Ontario.

One of these exempt assets is one vehicle worth up to $7,117.00. However, the Ontario Execution Act states that, for vehicles that exceed the prescribed value, a portion of the vehicle’s value must be paid to your LIT. This amount will go into your bankruptcy estate as part of the agreement.

If you lease or loan your vehicle, you do not have to surrender your vehicle. However, you are responsible for continuing to make your payments to keep it. If you have trouble managing your payments, you may consider surrendering your car to your lender.

If you surrender your vehicle before filing for bankruptcy, the outstanding balances can be included as part of your bankruptcy.

When considering debt relief options, your first step should be to meet with a Licensed Insolvency Trustee. At Crawford, Smith and Swallow Inc., we understand that you’ll have questions, and our free initial consultation will help you understand which debt relief solutions will work best for you.

We’ll help you turn the page to a brighter financial future. Reach out to us today.

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