David Sklar & Associates Inc.

Consumer Proposal & Bankruptcy Trustees
Serving the Greater Toronto Area

Vehicles in Bankruptcy in Ontario

One of questions that we are frequently asked is – “If I go into bankruptcy, will I lose my vehicle?”

Here in Ontario, the Ontario Execution Act determines some of the assets a bankrupt can keep out of their bankruptcy settlement. Included among those exemptions is: one motor vehicle not exceeding $5,650 in value.

If a bankrupt owns an unencumbered vehicle (ie has no loans against it) with a value of $5,650 or less, they will most likely be able to keep their vehicle.

In some circumstances, if a bankrupt owns an unencumbered vehicle that is worth more than $5,650 they might be able to pay the difference into their bankruptcy estate (for disbursal to their creditors) and keep the vehicle.

In either case, it is essential that the bankrupt review the details with their Trustee.

Leased Vehicles and Vehicles with Secured Loans

Dealing with a vehicle in bankruptcy becomes more complicated when it has a loan on it or it is a leased vehicle. A bankrupt needs to review their specific loan/lease situation with their Trustee to see what their options are.

Caution:

If you are thinking about declaring bankruptcy and (after discussing it with your Trustee), you have the option of keeping your leased or loan-encumbered vehicle - you should be aware of the following:

1. Your vehicle payments should already be UP TO DATE AND IN GOOD STANDING. If not, the lease/loan company has the right to seize the vehicle.


2. You must be able to make the lease/loan payments on time and in full, otherwise, the lease/loan company will have the right to seize the vehicle.


3. The first vehicle lease/loan payment made after the filing of the bankruptcy is considered a renewal of the terms of the lease/loan contract. Which essentially means this is a brand new debt.


4. If at any time after the filing of the bankruptcy, you are unable to maintain the payments and decide to return the vehicle OR if the lease/loan company seizes the vehicle for missed or late payments, you will be responsible for the full amount of the deficiency (the amount owed on the lease/loan less the amount realized in the sale of the vehicle). As this deficiency will be considered a post-bankruptcy debt, it cannot be included in your bankruptcy – and you will be responsible for paying it.

Turning in Your Leased or Loan-Encumbered Vehicle in Before Declaring Bankruptcy

If you decide to turn your leased or loan-encumbered vehicle in before declaring bankruptcy, any deficiency owning to the lease/loan company will most likely be considered unsecured debt that may be included in your bankruptcy. However, this is something you will need to discuss first with your Trustee.

Vehicles in Bankruptcy in Ontario

There is hope for some people heading into bankruptcy in Ontario, regarding their vehicles. However, the complexity of vehicles in bankruptcy means that everyone who is thinking about bankruptcy - needs to discuss their vehicle situation in full with their Trustee before making a decision or taking action.