Can I Keep my Leased Car During Bankruptcy? 

Keeping a Leased Car During Bankruptcy

What happens if you are currently leasing a car, but need to file for bankruptcy in Canada?

Is there a way to keep your vehicle and continue making lease payments, even after you’ve declared bankruptcy?

The answer is yes, although the specific rules vary from province to province.

In Canada, you can keep your leased car after filing for bankruptcy as long as you are up-to-date on your payments, continue to make payments on time, and your leasing company agrees to continue the lease contract.

This is because only unsecured debts are included in a bankruptcy.

Unsecured debts, like credit card debt and student loans, will be discharged when you file for bankruptcy.

However, a car loan or lease is a type of secured debt.

This means that your vehicle is used as collateral to back the loan, and if you default on the loan, your creditor can seize the car to cover the remaining loan amount.

That’s why it’s imperative that you continue to make your car lease payments on time.

Whether or not you decide to file for bankruptcy, your vehicle can be repossessed if you fall behind on payments.

 

What should I do if I want to keep my leased car during bankruptcy?

 

First, speak to a Licensed Insolvency Trustee (LIT) about the different debt solutions available and how to find the right option for you.

It may be possible to submit a Consumer Proposal instead of filing for bankruptcy, and a Licensed Insolvency Trustee will help you determine the choice that works best for your financial situation.

It’s also important that you read your lease agreement carefully prior to filing for bankruptcy, as many car leases contain a clause stating that the leasing company can seize the vehicle if you go into insolvency, even if you are up-to-date on payments.

If your lease has this stipulation, make sure you talk to your leasing company before you file for bankruptcy to see if they will allow you to keep your car.

Usually leasing companies will agree to continue the contract, since they will benefit more if you keep making payments than if they have to repossess the vehicle.

Each province has different rules regarding the amount of equity that you are allowed to keep in the event of insolvency.

So if you have a lease-to-own agreement for your vehicle, it’s possible that only a certain amount of equity will be exempt from seizure when filing for bankruptcy.

For example, if your province allows up to $5,000 in equity exemption for cars, and the value of your car is $10,000, you must not have paid off more than $5,000 of the car’s value in order for it to be exempt.

A local Licensed Insolvency Trustee will be able to explain the bankruptcy exemptions for cars in your province.

Always speak to a LIT first if you’re considering filing for bankruptcy, as they can help you understand your options when it comes to keeping your leased car.

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