Most of us rely heavily on our cars and use them on a daily basis to get to work or run errands.
That’s why many people often ask, what happens to my car if I file for bankruptcy?
If you are exploring your different debt relief options and considering bankruptcy, this article will give you all of the information that you need about how your car will be affected.
Exemption Limits
When you file for bankruptcy, there are certain assets that are exempt and your car is one of them.
However, there are limits on the value of the car and the rules are different in every province.
In most cases, the limit is somewhere between $5000 and $7000.
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If your car is worth more than the limit, you will be required to pay the excess to your trustee.
For example, in Ontario, the exemption limit is $6,600.
If your car is appraised at $7,600, you can keep the car but you are required to pay the extra $1000 to your trustee if you want to do so.
If there are loans or liens registered against the car and you are unable to pay, the car may be collected during your bankruptcy as well.
Secured Loans and Leases
If you do not own the car outright and instead lease it, or there is a loan against the car and the loan is equal to the value of the car, your trustee will not recover the car.
In this situation, you have two main choices.
If your payments on the loan or the lease are up to date, you will be allowed to continue as normal, in accordance with the terms of the loan, and keep your car.
However, if you are not able to make the payments or you think that you may struggle to keep making the payments in future, you can also choose to surrender the car to the lender and stop paying.
If you do this before you file for bankruptcy and you still owe money on the loan, this debt will be included in your bankruptcy.
When you are deciding what to do, you should consider how easily you can afford to make the payments.
When you declare bankruptcy and wipe your debts, it’s an opportunity for a fresh start.
In the future, you need to be more sensible with your money so you can avoid getting into debt again, and expensive car payments can make that difficult.
In a lot of cases, it may be best to surrender the car and downgrade to something more affordable, so you can easily make the payments without stretching your finances.
Hopefully, that should have answered the question, what happens to my car if I file for bankruptcy?
If you need more information about things like exemption limits, or you want some more advice about the different debt relief options available to you, get in touch with us today and we can help.
You can reach us on the phone or fill out an evaluation form and we will get back to you.
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