vehicle repossession

Can I Keep My Truck if I File for Bankruptcy? A Guide to Vehicle Repossession

Vehicle repossession can occur if you choose to declare Bankruptcy as a way to clear your debts, however you won’t always lose your vehicle in a Bankruptcy. Before you start to worry that you’ll lose your car or truck during the Bankruptcy process, you may have other options available to you to get your finances back on track. 

Talk to a Licensed Insolvency Trustee (LIT). They will walk you through your debtor’s repossession rights and can help you put the next steps in place to take some worry off your shoulders. If you choose to declare Bankruptcy, your Trustee will essentially do the hard work for you – from selling your assets to contacting your creditors on your behalf.

What is Repossession?

Repossession is where a creditor takes possession of a valuable asset, like a car or property, after you declare Bankruptcy. During the Bankruptcy process, you surrender your assets to your LIT  for the discharge of your debts, which can help give you a fresh start. 

But before you start to worry that you’ll essentially lose everything, there are exceptions to the assets you must hand over. Bankruptcy exceptions are in place so you can keep certain assets that the government considers reasonable living expenses. 

It is not common for you to be without a car or truck when you declare Bankruptcy – in Alberta, you’re entitled to keep one motor vehicle up to the value of $5,000. But this does mean that if your vehicle is worth more than that amount, you may lose it to help you clear your debts.

To work out if you can keep your car, you’ll need to have the vehicle appraised to decide its value. Most Trustees will accept the opinion of someone qualified to sell or value cars, that isn’t related to you or a friend. From there, you’ll need a letter that details what they believe the fair market value of your vehicle is (how much someone, who isn’t related to you, would pay for your vehicle).

Another factor to consider is whether your car or truck is financed or leased, or whether you own it outright. The status of your vehicle will determine what you’ll need to do if you’re looking to keep your car.

Leased or financed cars

If you’re currently making monthly repayments for your car, it will either be a car loan or a lease. With a lease, you’re essentially renting the car and there are mileage limits that add costs when the lease ends and you return the vehicle to the dealer.

A car loan is a form of secured debt, meaning if you struggle to keep up with the loan repayments, your lender can repossess the vehicle to recoup the money that you owe. However, if you’re consistently paying your monthly car payments before you file for Bankruptcy, you’re more likely to be able to keep your car or truck.

Filing Bankruptcy when you own the car

If you own your car or truck, meaning you’ve finished paying the loan or bought it outright, you will still have to account for it when filing for Bankruptcy. How much the car is worth will be crucial to your Bankruptcy and what assets are used to clear your debts. 

After your vehicle is valued, if it’s found to be worth more than the allowed maximum in your province, you can redeem it from being taken by paying the difference between its value and the maximum limit. 

For example, in Alberta, you’re allowed to keep a vehicle worth up to $5,000. So, if your vehicle is valued at $7,000, you could pay your Trustee the $2,000 difference. From there, your Trustee would put the $2,000 into the pot of money that will be sent to your creditors to clear your debts. You would then be able to keep your car or truck, even after declaring Bankruptcy.

Will I lose all my assets when I file for Bankruptcy?

It’s a popular assumption that you’ll lose all that you own when you file for Bankruptcy. In reality, you will not lose everything. 

Each province and territory in Canada has its own exemptions to the Bankruptcy law, which explains which of your assets and how much equity you are allowed to keep. Your LIT will go through your assets with you to determine which of them you should be able to keep, and which will be given up to be discharged from your outstanding debts.

In Alberta, Calgary, the Civil Enforcement Act decides what assets are protected against the liquidation by creditors to pay off debts. Here are the Bankruptcy exceptions for Alberta:

  • Unsecured furniture, household appliances: Up to $4,000
  • Motor vehicle: Up to $5,000
  • Food and fuel: An amount needed to feed the debtor and their dependants for 12 months
  • Clothing: Up to $4,000
  • Tools of trade: Up to $10,000
  • Medical aids: Medical aids required for debtor or dependents
  • RRSPs, RIFs, RESPs, RDSPs and certain life insurance policies: Exempt (with some restrictions). Contact your Licensed Insolvency Trustee for details.
  • Equity in Primary Residence: $40,000 for the property, subject to conditions. Contact your Licensed Insolvency Trustee for details.

Should I file a Consumer Proposal to keep my car?

If you’re struggling to repay your debts, you have two options available. You can either file a Consumer Proposal, or a personal Bankruptcy. Both procedures handle assets such as vehicles very differently. If you’re unsure which suits your situation best, you can discuss your options with your Trustee.

A Consumer Proposal 

Filing a Consumer Proposal is an alternative to filing for Bankruptcy. You’ll make a settlement offer to pay back a percentage of your debt at a lower interest rate for a period of time, to help you get your finances back on track. A Consumer Proposal usually involves you making monthly repayments for up to five years.

With a Consumer Proposal, if you own your vehicle free and clear (meaning it’s not leased or being paid for with a loan or car finance), you simply keep it, regardless of its value.

If you still owe money on the vehicle, as long as you keep on top of your monthly payments, you should be able to keep it. It’s important to remember that if you miss payments, your lender may repossess your vehicle.

If you’re concerned about keeping on top of your car repayments, make sure to discuss this with your LIT who can help you put together a course of action to get your finances back on track.

Ready to take control of your debts?

It’s never too late to seek help for your debts – doing so can offer you financial peace of mind and a fresh start. With the help and advice of one of our experienced Licensed Insolvency Trustees, you’ll have a plan of action in place to help you clear your debts and move towards financial wellbeing. 

Contact one of our Licensed Insolvency Trustees today – We Can Help.

About Author

Allan Marshall & Associates Inc.

Allan Marshall & Associates Inc. is a Licensed Insolvency Trustee firm found in Alberta & the Maritimes. We are licensed by the Federal Government of Canada to administer bankruptcies, Consumer Proposals, receiverships and other insolvency services. We have the knowledge and experience to assess your situation and offer the best advice for your particular need, whether you are a first time bankrupt or simply struggling to make ends meet.