A common question many people considering bankruptcy have is about what happens to my car in bankruptcy?
The answer to what happens to your car in bankruptcy or a consumer proposal depends on several factors about your vehicle.
The first factor about your vehicle to consider is how much the car is worth.
You will have to get your car appraised and have a written letter to give to the trustee indicating the fair market value of your vehicle.
You must also consider if you have liens against your car, ie you are still paying off your car loan, or if you have “clear title” to your car.
Liens Against Your Car
If you have a lien on your vehicle when you claim bankruptcy, the lien holder will have to prove to the trustee that they hold a valid claim against your car.
The trustee will release the vehicle to the lien holder if they can prove their claim and it has priority over any other claims.
When the car is released to your creditor you might have the chance to keep your vehicle if you wish.
In the case of your car being worth approximately what you owe on it you will likely be given the chance to keep making your monthly payments if you would like to keep the vehicle.
If you owe significantly more than your vehicle is worth you also have the opportunity to simply surrender the vehicle to your creditor and the shortfall debt will be included in your bankruptcy.
Your creditor might also seize the vehicle even if you would like to continue making the payments because once the vehicle has been released to them they have the right to seize the car.
If you have a lien against your vehicle but the value of your vehicle is significantly more than the amount of the lien, your trustee will either give you the option of keeping up the payments on the vehicle or will seize the vehicle and sell it.
If you cannot afford to keep up the payments but would like to keep your car you might want to consider a consumer proposal.
What if I Have Clear Title (No Liens) Against my Car?
If you own your car free-and-clear you will have the chance to pay the trustee the fair market value of your car and you will be able to keep your car in bankruptcy or, if you are unable or do not want to pay the fair market value, you will have to surrender your car to your trustee who will sell the vehicle and distribute the funds to your creditors who are listed in your bankruptcy.