Purchasing a Vehicle During Bankruptcy
The question of whether one can acquire a car during bankruptcy is not an uncommon one. Many individuals who have filed for bankruptcy find themselves wondering if it’s possible to make such a significant purchase while under bankruptcy protection. The answer is yes, but there are some important considerations to keep in mind.
What Does It Mean to Be Bankrupt?
Before diving into the details, let’s first clarify what it means to be bankrupt. When a person is declared bankrupt, it means they are legally unable to pay their debts. This status is achieved by filing an assignment in bankruptcy, a legal process administered by a Licensed Insolvency Trustee (LIT).
The Period of Undischarged Bankruptcy
When you file for bankruptcy, you enter what’s known as a period of undischarged bankruptcy. This period begins on the date you filed the assignment in bankruptcy and lasts until you are discharged from the bankruptcy process. During this time, you are technically still considered bankrupt.
Buying a Car During Bankruptcy
Yes, you can buy a car during bankruptcy. However, if you are financing the purchase, you are obligated to disclose your status as an undischarged bankrupt.
This is important because the finance company will undoubtedly obtain a credit report on you. If you fail to disclose your bankruptcy status, you risk losing credibility. This could result in a higher interest rate due to the perceived risk or a reduced loan amount, which may necessitate settling for a less expensive car.
In Ontario, a vehicle is exempt from seizure in bankruptcy up to a value of $6,600. If the vehicle is required as a “tool of trade”, the exemption increases to $11,300.
Considering Your Budget
It is advisable to discuss your financial situation and budget with your LIT at the start of your bankruptcy.
The Role of Family Members
Family members can play a crucial role in helping you acquire a car during bankruptcy. If a family member is giving you money to buy a car, they should register a lien on the car for the amount they are giving you. This ensures that no equity will accrue to your creditors.
Alternative Options
If a family member is giving you a car to help you during your bankruptcy, there are a couple of options to consider:
- The family member can lease the car in their name and add your name to the insurance. In this case, it might be wise to increase the insurance coverage for maximum protection.
- If the vehicle is transferred into your name, the family member could put a lien on it for the value of the car.
It’s always crucial to discuss these options with your trustee.
Conclusion
While buying a car during bankruptcy is possible, it’s important to consider all factors and discuss your options with a knowledgeable professional.
