How Does The Seize or Sue Law Work in BC?
Car dealers know that the vast majority of people do not have cash on hand to buy vehicles outright.
For that reason, they work with lenders that provide credit to buyers, giving them the capital they need to meet the full cost.
Car loans have been a part of the financial landscape for decades, but that doesn’t mean that they are always beneficial for consumers.
Every year, a segment of buyers find themselves taking out loans that exceed that value of the car, and that can lead to a downward financial spiral.
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It happens when the resale value of the vehicle falls faster (due to depreciation) than the outstanding loan (plus interest payments).
As this process plays out, owners find themselves in a negative equity situation: they owe more money than their vehicle is worth.
Typically, people continue paying off their loans until they come to buy a new car.
When they trade in their old vehicle, however, they only get the resale value.
The dealer then rolls over their negative equity into the loan for the new car, and the process begins all over again.
Thus, people in British Columbia can frequently find themselves tens of thousands of dollars out of pocket.
How Seize Or Sue Rules Work In BC
A lot of people find themselves stuck in a bad car loan.
They owe a large sum of money for a vehicle that is worth very little.
BC, however, has brought in a set of consumer-friendly laws called seize or sue rules, designed to help fight back against this state of affairs.
The aim is to offer people who are in bad loans for vehicles (including cars, trucks, and motorcycles) a way out.
The law works like this: when you buy a vehicle, the lender (usually a bank) issues a security agreement.
This contract sets out what the lender is allowed to do to recover debts if you repeatedly fail to make payments on your car loan.
So, where do BC’s seize or sue rules apply? If you miss payments on the loan, the law says that lenders must make a choice.
They must either “seize” your vehicle and sell it for the resale value, or they must sue you.
They cannot do both.
Before the law came into force, loan companies would take the vehicle and then sue borrowers for any remaining money they owed – including the negative equity.
Seize or sue rules, however, prevent this from happening.
The lender must either seize the car or sue you for the full amount.
The law has some important implications.
If the car is worth more than the loan, the bank will usually seize the vehicle in a process called involuntary surrender.
If, however, the loan is worth more than the car, then the lender will often attempt to sue the borrower for the full amount.
And that’s when financial difficulties can start.
What To Do If The Lender Decides To Sue
So what happens if the lender decides to sue?
If you can afford to repay the loan at the regular rate, you may wish to do this until you clear it.
If, however, you’re unable to make payments out of your income, then you will need to take action to prevent the bank from suing you.
Creditors you owe money will seek a “garnishment order” from a BC court, giving them the legal right to extract money directly from your paycheck.
Fortunately, you can prevent this from happening by working with a bankruptcy trustee.
This agent can help you file a Stay of Proceedings, stopping the court case from moving ahead until you have explored various legal defences.
In BC, you have the right to file something called a consumer proposal.
This facility is a formal legal process where you can negotiate the terms of the loan with your creditors.
Many people in BC find that they can reduce this tool to reduce the total amount that they owe.
It is important to note that the BC seize or sue rules only apply to loans, not leases.
Before you take any action, therefore, you need to check what kind of arrangement you have with the lender.
If you took out the loan outside BC but live in British Columbia, BC seize or sue rules do not apply.
Every situation is different.
For this reason, you must speak with debt counsellors and bankruptcy experts who can advise you on the proper course of action.
The BC seize or sue law offers you some protection, but you can still find yourself in financial trouble if you don’t take swift action.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?