Bankruptcy and Retaining Your Vehicle in Canada
In the journey of life, financial hardships can emerge unexpectedly. When debts become insurmountable, declaring bankruptcy may seem to be the only feasible option. However, the thought of losing everything, especially one’s car, can be daunting. This guide navigates you through the process of declaring bankruptcy in Canada and how you can keep your vehicle amidst this financial storm.
Understanding Bankruptcy
Bankruptcy is a legal proceeding that provides relief to individuals and businesses that cannot meet their financial obligations. It is governed by the Bankruptcy and Insolvency Act in Canada and is designed to allow honest, but unfortunate, debtors a fresh financial start.
Role of a Licensed Insolvency Trustee
A Licensed Insolvency Trustee (LIT) is a federally regulated professional who provides advice and services to individuals and businesses with debt problems. They are the only professionals authorized to administer government-regulated insolvency proceedings that allow you to be discharged from your debt.
Filing for Bankruptcy
Bankruptcy filing is a step-by-step process that begins with contacting a Licensed Insolvency Trustee. The LIT will assess your financial situation, explain all available debt relief options, and if necessary, help you understand the process of declaring bankruptcy.
Costs and Duration of Bankruptcy
Bankruptcy isn’t free. There are costs involved, which include the LIT’s fees, a portion of your income, and the loss of some of your assets. The duration of bankruptcy can vary based on your income and whether it’s your first bankruptcy filing.
Impact of Bankruptcy on Your Assets
One common misconception is that filing for bankruptcy means giving up everything you own. However, this is not entirely true. Certain assets are exempt from seizure in a bankruptcy, and this includes your car under certain conditions.
Debts and Assets in Bankruptcy
When you file for bankruptcy, most of your debts are eliminated. However, what happens to your assets depends on their value and the province or territory’s exemption limits where you live.
Exemption Limits on Vehicles
Each province or territory in Canada has its own set of bankruptcy exemption limits. These limits determine what value of a particular asset you can keep after declaring bankruptcy. For vehicles, these exemption limits can vary significantly from one province or another.
Keeping Your Car in Bankruptcy
The possibility of keeping your car during bankruptcy depends on a few factors that include whether you own the car outright, the value of the car, and whether you use it for work.
When You Own Your Car
If you own your car outright (meaning, there are no liens against it from car loans), and if its value is below your province’s vehicle exemption limit, you can usually keep your car when you declare bankruptcy.
When You Lease or Have a Loan for Your Car
If you lease or finance your car, the situation is a bit different. In these cases, the lending or leasing company has a lien on the car, meaning that they technically own it. Whether you can keep your car depends on the terms of your lease or financing agreement and whether you can continue making payments.
When You Use Your Car for Work
If you use your car as part of your work, some provinces and territories have specific exemptions that allow you to keep it, even if its value exceeds the standard vehicle exemption limit.
Declaring Bankruptcy and Retaining Your Car: A Step-by-Step Guide
Below is a step-by-step guide on how to declare bankruptcy and retain your vehicle:
- Consult a Licensed Insolvency Trustee: Discuss your financial situation and understand your options.
- Review Your Vehicle’s Value: Determine whether your car’s value is within your province’s exemption limit.
- Examine Your Car Lease or Loan Terms: If you lease or finance your car, check whether your agreement allows you to keep the car during bankruptcy.
- Assess Your Budget: If you’re struggling with your car payments, it may be best to surrender the car before filing for bankruptcy.
- File for Bankruptcy: If you decide bankruptcy is the best option, your LIT will guide you through the process.
- Continue Your Payments: If you’re keeping your car, make sure to keep up with your car payments during the bankruptcy process.
Conclusion
Declaring bankruptcy is a major decision that can have long-lasting effects on your financial situation. However, it’s possible to go through this process and keep your car, particularly if you rely on it for your livelihood. Remember, a Licensed Insolvency Trustee is there to guide you through the process and help you make the best decisions based on your personal circumstances.
