“Can creditors take my car?“
This is a common question and the answer depends on the circumstances…
If your car is financed and the lender has registered a lien against it, then you’ll need to continue making your loan payments. Otherwise, the lender will repossess the vehicle. Such a lender is called a “secured” lender in that it has security over your vehicle and has a right to repossess it in the event of non-payment of the loan.
Now let’s suppose you own your car outright (i.e., it’s not subject to a loan), but you owe money to “unsecured” creditors like credit card companies, payday loans and the like.
If you default on your payments to your unsecured creditors, what they would normally do is obtain a judgment against you (usually in Small Claims Court) and to enforce the judgment, they would obtain a Writ of Execution and use it to seize and realize on your property (with the assistance of the Sheriff’s office). For example, with a Writ, your creditors can garnish your wages, your bank accounts and seize your property in general.
However, the exception to this general rule are assets that fall under a law called the Executions Act. Under the Executions Act you can keep your vehicle if its fair market value is below a certain threshold. For example, in the province of Ontario, you can keep a personal use vehicle valued at $6,600 or less. Each province in Canada will have its own Executions Act with their own exemptions. This law contemplates that every person has basic necessities of life, such as a motor vehicle for instance. Therefore, certain assets considered as basic necessities should be protected from creditors. Here’s a summary of exempt assets in each province.
“Can I keep my car when filing for personal bankruptcy?”
The Executions Act applies in a bankruptcy filing as well. For example, in you file bankruptcy in Ontario (and your vehicle is in Ontario), you can keep your personal use vehicle if its valued at less than $6,600.
On the other hand, if your vehicle is valued at more than $6,600 and you wish to keep your vehicle, you’ll need to pay to your Licensed Insolvency Trustee the difference between its fair market value and the $6,600 exemption limit.
Of course, if your car is a leased vehicle, then it doesn’t actually belong to you. The car is actually property of the leasing company. The easiest way to confirm this is to look at the car ownership certificate. There are two portions to the ownership certificate: the owner portion (left side) and the permit portion (right side). If a vehicle is truly a leased vehicle, the name of the leasing company will be on the owner portion.
If your car is financed through a car loan, your Trustee will have to determine if there is any equity in the vehicle. Here’s an example:
Fair market value of car $7,000
Car loan balance 10,000
In this case, your car has no equity. The Trustee therefore has no interest in this vehicle. Since the loan is a secured debt, you must keep paying the car loan if you want to keep the vehicle.
Fair market value of car $5,000
Car loan balance 1,000
In this case, the car has $4,000 of equity. So you would think your Trustee would have to realize the $4,000, right? Well, the actual answer is no. Remember that you can keep a personal use vehicle if its value is less than $6,600. In this case, even though there is equity in the vehicle, its value is less than $6,600 and therefore, you can keep the car.
Fair market value of car $10,000
Car loan balance 1,000
In this case, the car has $9,000 of equity. Also, its value is more than the $6,600 exemption limit. Therefore, the Trustee would have to realize $2,400 ($9,000 — $6,600) for the benefit of your creditors. The Trustee can sell the car, pay off the car loan and keep the rest for the benefit of your creditors. Alternatively, the Trustee can make arrangements for you to keep the car if you “buy out” the Trustee’s interest of $2,400. For example, you might be able to borrow $2,400 from your parents to pay to the Trustee. Or, you might arrange to make monthly payments to your Trustee so that the $2,400 is paid out over time.
This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances.