Motor Vehicles in Bankruptcy

Krieger & Company

What happens to my car or motorcycle

In Ontario, a bankrupt is entitled to keep one car or motor vehicle with a wholesale value of up to $6,600. The Trustee will review the value of your vehicle and discuss this with you before filing an assignment in bankruptcy.

What if my vehicle is worth more than the exemption?

The Trustee will determine the equity in your vehicle by subtracting your exemption ($6,600) from the value of the vehicle. The remaining portion is the value that the Trustee must receive for the vehicle. Arrangements are made between you and your Trustee to make payments to re-purchase the equity.

For example: Jennifer owns a Toyota Corolla valued at $7,000. After subtracting the exemption of $6,600, Jennifer would have to pay the Trustee $400 in order to keep her vehicle. An agreement is made between Jennifer and the Trustee to pay $50 per month for 8 months in order to keep her Toyota Corolla.

What if my car is leased of financed?

If the amount remaining to be paid on a lease or finance is significantly more than the value of the vehicle, your Trustee will discuss your right to return the vehicle to the lessor/lender and include the resulting debt in your bankruptcy. If the vehicle is unaffordable due to high monthly payments or if the vehicle is worth far less than its value, keeping the vehicle may hurt your financial position after your discharge from bankruptcy. While this includes the shortfall on your vehicle in your bankruptcy, it also leaves you without the vehicle as a form of transportation.

If instead you retain the vehicle, you must be up-to-date and continue to make lease payments on the vehicle. If you retain the leased or financed vehicle, any amount outstanding to the lender will be subtracted from the vehicle value.

For example: Allan owns a new Nissan Sentra that he leased only months ago. Allan’s Sentra is worth $18,000, however the outstanding payments on the loan are $16,000. The Trustee would calculate that Allan has $2,000 of equity in the vehicle, which is below the exemption. Allan would keep his vehicle so long as he maintains the payments on the leased vehicle.

What if I own more than one vehicle?

If you own more than one car or motorcycle or have more than one car or motorcycle in your name, you can only claim one vehicle under the exemption, irrespective of its value. The second vehicle is an asset that would be available to the Trustee and arrangements must be made with the Trustee if you wish to keep your vehicle.

For example: Steve owns a car worth $7,000 and has his old non-working car which has a scrap value of $300. Steve uses the exemption on his first car, which as a result has equity of $400 ($7,000 less $6,600). He would need to make arrangements with the Trustee to pay $400 for the first vehicle and $300 for the second vehicle.

For example: Reg owns a car worth $3,000 and has his old non-working car which has a scrap value of $300. Reg uses the exemption on his first car. Reg’s first car is exempt and he would need to pay $300 for his second vehicle.