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Consumer Proposals, Bankruptcies, and Your Vehicle

Thinking about filing for a consumer proposal or bankruptcy? You might have a few questions.

One of the questions we hear most frequently is “what happens to my vehicle?”

Whether you’re considering filing for a consumer proposal or bankruptcy, your car could be affected. Read on for the answer.

What happens to my vehicle in a consumer proposal?

In a consumer proposal, you make a proposal to your creditors to settle your debts for less than what you owe, but more than they would receive if you filed for bankruptcy. If this is approved by the majority of your creditors, the proposal can go through.

Typically in a consumer proposal, your assets are not affected. A consumer proposal only deals with unsecured debts – like your credit card bills – vs. secured ones, like your car and home.

But — and this is a big but — your car could be affected if you have missed payments on your loan or are otherwise not in good standing. And even if you haven’t missed any payments, if you cannot keep up with the payments on your car, that is another issue entirely.

Sometimes people who file for a consumer proposal have gotten into debt from living beyond their means – spending too much and not being able to pay their bills. Their income might be tied up in an expensive mortgage or even an expensive car loan.

If the car loan is too much to pay in full every month, it may make more sense to trade in an expensive vehicle and purchase a less expensive used vehicle instead.

To sum it up, while you can typically keep your car in a consumer proposal, it might not make sense to do so if the car is too much for your budget and the money could be better used elsewhere.

What happens to my vehicle in a bankruptcy?

Unlike a consumer proposal, when you file for bankruptcy your assets can be affected. So depending on the value, your vehicle could be repossessed.

That said, most provinces in Canada have exemptions that protect some assets from seizure. In many provinces, this includes one car or truck worth up to a certain dollar limit.

To determine if your car would be affected, you need to know what your current vehicle is worth. You also need to know if your car is financed or if you have a clear title — i.e. are you still repaying the car loan?

Whether you’re able to keep your vehicle will depend on several conditions – including how your bankruptcy is structured, the value of your vehicle, the province you live in, and more.

However, again, it’s important to look at what you can realistically afford. Is your car too much for your budget? If you didn’t have other debts, would your vehicle be affordable — or is it still taking too much away from your budget? These are crucial to consider even if your vehicle is not seized during bankruptcy.

Keeping your vehicle vs. trading it in

In both of the above scenarios, we mentioned considering the true cost of your vehicle. This comes down to several key factors, including:

  • How much does it cost you each month – do you have an expensive loan? Are you able to keep up with the payments without sacrificing from another bucket in your budget?
  • How much gas mileage does your vehicle get? How much do you spend on fuel each month?
  • How much does the maintenance cost you? Some vehicles cost more than others simply based on brand.
  • How old is your vehicle? Does it have warranty left? Or will you be footing the bill for any repairs yourself?
  • What upgrades is your vehicle due for – new tires, new brakes, etc.?

These are all a part of your financial “big picture” and should be considered whether you are filing for a consumer proposal, for a bankruptcy, or simply trying to better manage your budget.

Keeping a vehicle that’s more than you can afford – or more than you are comfortable spending — every month won’t help you improve your financial situation. In many cases, it makes far more sense to trade-in for a lower-cost vehicle and find more savings.

Look for a second-hand vehicle from a reputable dealership that rigorously tests for safety. Determine what you want to spend (your budget) and base your decision on that — not your emotions. This isn’t about finding the “coolest” car or having a luxury vehicle. It’s about having the luxury of financial freedom and being confident in the fact that your budget is under control.

At Prudent Value Cars, we offer superior pre-owned vehicles for people with bad credit in Toronto and the GTA — including those in bankruptcies and consumer proposals. We can help you find a car that fits your budget.

For more information about our inventory and car loans, call 1.888.852.7647 or visit https://prudentvaluecars.com.

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