As a federally Licensed Insolvency Trustee, we often meet with individuals looking to get relief from their debts and obtain a fresh start. However, in many cases, people have a vehicle that is critical to their future employment or business interests. As a result, there is an obvious concern as to whether their car would be lost to them if they proceeded to get protection from their creditors. The common answer is no, usually you can keep your vehicle, but there are a variety of different scenarios. Let’s take a closer look at a couple of them:
I RECENTLY BOUGHT THE CAR AND HAVE A CAR LOAN
There are a couple of different categories of debt. One type is called secured debt. This exists when the creditor has collateral in some form. The best examples are a mortgage on a house or a loan on a car. This means that if the payments are not made then the secured creditor has the right to seize the vehicle for non payment. A vehicle that has recently been purchased via a vehicle loan typically has very little or no equity in it. Equity is defined as the difference between the fair market value of the vehicle versus the amount of the secured loan against it. There is a common saying that you lose money on a vehicle as soon as you drive it off the lot.
In situations where there is little or no equity you can generally keep the vehicle, even if you make a bankruptcy filing or file a consumer proposal, so long as you continue to make payments on the secured loan.
The secured creditor tends to like this arrangement because they make more money from the ongoing interest on the loan payments versus the other options of seizing the vehicle. We regularly see this situation.
I HAVE A VEHICLE WITH NO LOAN AGAINST IT
We often find that our first reply to this situation is: “it depends”. The reason the reply is like this is because so much depends on the value of the asset. The Federal Government lets each province set different exemptions for what assets people are allowed to keep when they get protection from their creditors by way of a consumer proposal or a bankruptcy filing. In British Columbia, the general exemption for a vehicle is $5,000 which is reduced to $2,000 if you owe an ex spouse for support payments.
For example, if your vehicle is worth $4,000 and you don’t owe support payments, then the vehicle would be exempt from creditors and you could keep it. But what if the vehicle was worth $7,500? Then the vehicle would have non-exempt equity of $2,500 ($7,500-$5,000). As a result, you would have to make that $2,500 equity available to your unsecured creditors. However, you still don’t necessarily have to lose your vehicle. An agreement can be struck with via your Licensed Insolvency Trustee to keep the vehicle and forward the non-exempt equity into the consumer proposal or bankruptcy over time.
I USE MY VEHICLE ENTIRELY FOR WORK
On the occasions that we are speaking with people who are self employed, the circumstance comes up where there is a vehicle that is being used entirely for work. In those instances, another exemption can apply for a tool of the trade. This exemption is valued at $10,000 and is designed so that a person can continue to earn a living in the future.
The overall purpose of gaining relief through a consumer proposal or bankruptcy is to allow the honest but unfortunate person a fresh start. Therefore, exemptions exist to allow a person to retain a certain amount of assets.
While some of these terms may sounds scary, schedule an appointment, and ask questions about your specific situation. There is a pathway to a better financial future, so go ahead and make that first appointment; it’s free!