Can I Claim Bankruptcy and Keep My Car?

Keeping a Vehicle When
Declaring Personal Bankruptcy

In Canada, one common concern for individuals considering bankruptcy is whether they can keep their car throughout the process. The fear of losing one’s vehicle can be overwhelming, as it is often necessary for daily transportation and work commitments. Fortunately, the answer to the question “Can I claim bankruptcy and keep my car?” is generally positive.


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Understanding the Impact of Car Loans in Bankruptcy

When determining whether you can keep your car in bankruptcy, two crucial factors come into play: whether there is a loan on the car and the vehicle’s value. Let’s delve into each scenario to gain a better understanding.

If You Have a Car Loan

Contrary to the belief that bankruptcy results in the loss of all assets, the reality in Canada is different. Secured debts, such as car loans, are treated differently in bankruptcy. When you file for bankruptcy and your car is collateral for a loan, both the loan and the vehicle are typically exempt from the bankruptcy proceedings. This means that you can keep your car as long as you continue making loan payments.

However, if you wish to be released from your car loan, you would need to arrange the sale of the vehicle with the lender or finance company. The proceeds from the sale would then be used to pay off the loan. If the vehicle sells for less than the loan amount, the remaining balance would become an unsecured debt, which could be included in your bankruptcy if it occurred before filing.

If You Fully Own the Car

If you own your vehicle outright, without any liens or loans, the outcome of keeping it in bankruptcy depends on its value. Each Canadian province has specific rules regarding the maximum value of a vehicle that can be retained in bankruptcy. Here are the maximum vehicle values for several provinces:

  • Ontario: $6,600
  • British Columbia: $5,000
  • Alberta: $5,000
  • Manitoba: $3,000
  • Saskatchewan: $10,000
  • Quebec: No limit unless the vehicle is necessary for work

If your vehicle’s appraised value exceeds the allowed maximum in your province, you can still keep it by paying the difference between its appraised value and the limit set by the province. For example, if your province allows you to keep a vehicle worth up to $5,000 and your car is appraised at $6,000, you can pay the trustee the $1,000 difference. This amount would then be distributed to your creditors, allowing you to retain ownership of your car.

Repair Your Credit Faster by Keeping Your Car Loan

While bankruptcy can significantly impact your credit, there are ways to rebuild it more efficiently. If you have a car loan and wish to keep your vehicle, continuing to make timely payments during and after bankruptcy can help improve your credit score. By demonstrating responsible payment behavior, your car loan can serve as a positive factor in rebuilding your credit history.

Bankruptcy is often viewed as a last resort, and it’s essential to explore all available alternatives before making a decision. Consulting with a credit counselor can provide insights into various options that may suit your financial circumstances and future goals. By considering alternatives to bankruptcy, you can make informed choices that align with your unique situation.

Exploring Your Options and Making an Informed Decision

When faced with financial difficulties, it’s common to feel overwhelmed and consider bankruptcy as the only solution. However, between financial struggles and bankruptcy, numerous options exist. Seeking guidance from credit counselors who are well-versed in these alternatives can help you find the most suitable path to address your financial challenges and work towards your future goals.

Declaring bankruptcy may hinder certain career paths and limit future opportunities. Therefore, it’s crucial to explore other options that align with your specific circumstances. By scheduling an appointment with a credit counselor, you can discuss your financial situation and gain valuable insights into the alternatives available to you. If bankruptcy is determined to be the best course of action, the credit counselor will guide you through the necessary steps and refer you to a reputable trustee.

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Frequently Asked Questions

What happens to my car if I file for bankruptcy in Canada?

In most cases, individuals who declare bankruptcy in Canada can keep their vehicles. The outcome depends on whether there is a loan on the car or its value. If you have a car loan, you can generally retain ownership of the vehicle as long as you continue making loan payments. If you own the car outright, its value must fall within the allowed maximum determined by your province. If the car’s appraised value exceeds the limit, you can pay the difference to the trustee to keep it.

Will I lose my car if I file for bankruptcy?

The likelihood of losing your car in bankruptcy is generally low. Canadian bankruptcy laws allow individuals to retain their vehicles, provided they meet certain criteria. If you have a car loan and continue making payments, you can keep the vehicle. If you fully own the car, its value must fall within the allowed limit set by your province, or you can pay the difference to the trustee to retain ownership.

Can keeping my car loan help repair my credit faster after bankruptcy?

Yes, keeping your car loan and making regular payments can help in the process of rebuilding your credit after bankruptcy. While bankruptcy has a significant impact on your credit score, maintaining a good payment history on your car loan demonstrates responsible financial behavior. This positive payment activity can contribute to a faster credit recovery compared to having no secured debts reporting on your credit report.

What are the alternatives to declaring bankruptcy?

Bankruptcy should be considered a last resort when facing financial difficulties. Numerous alternatives exist, and exploring them with the assistance of a credit counselor can help you find the best solution. These alternatives may include debt consolidation, debt management plans, consumer proposals, or negotiating with creditors. Each option has its advantages and considerations, and a credit counselor can provide personalized guidance based on your specific circumstances.

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Declaring bankruptcy in Canada does not automatically result in the loss of your vehicle. Whether you have a car loan or own the car outright, there are provisions in place to protect your vehicle during bankruptcy proceedings. By understanding the rules and exemptions specific to your province, you can navigate the process more confidently. Consulting with a credit counselor is highly recommended to explore all available options and make an informed decision that aligns with your financial goals. Remember, bankruptcy is not the end; it’s a chance for a fresh start.

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During our initial meeting, they took the time to understand my debt and financial circumstances. They explained the various options available to me and helped create a personalized plan that would be most beneficial for my situation. With their assistance, I was able to avoid declaring bankruptcy by presenting a consumer proposal to my creditors. Fortunately, my proposal was accepted, and I am extremely relieved to finally be free of debt, all thanks to BankruptcyCanada. The burden on my shoulders feels significantly lighter now, and I truly believe that Bankruptcy Canada has the most skilled specialists in debt relief.