Bankruptcy and Your Vehicle
Vehicles worth less than $6,600 are exempt and therefore unaffected by bankruptcy. If you’re vehicle is worth more than $5,650, then you have two options.
Pay your Trustee the amount by which the value of your vehicle exceeds the $6,600 exemption.
Surrender your vehicle to your Trustee and be reimbursed for the first $6,600 realized by the Trustee upon its sale by auction.
Only one vehicle is exempt in each bankruptcy. Therefore, if you own two vehicles, you’ll always need to surrender or repurchase the less expensive vehicle.
Many people finance their vehicle. In this case, only the net equity is compared to the exemption. For example:
$20,000 2014 Honda Civic
$16,000 Secured Loan due to Honda Canada
$4,000 Net Vehicle Equity
Since the net vehicle equity of $4,000 is below the provincial exemption in the example above, the bankrupt would have two choices, keep the vehicle and the payments, or surrender the vehicle, and include any resulting debt in the bankruptcy.
Negative Equity – When it pays to return your vehicle
If your vehicle is worth less than the amount you owe on it, then your vehicle is “underwater” and it’s probably a good idea to return it as part of your bankruptcy. We see many people with $20,000 vehicle loans and $10,000 vehicles. In these case, we suggest returning the vehicle, losing the debt, and buying another vehicle that isn’t underwater.
If you lease your vehicle, then you don’t own it. After declaring bankruptcy you can either keep your car and the payments, or return the car and stop paying for it. If you choose to return your car, any resulting debt will be included in your bankruptcy as long as you didn’t make any lease payments after your bankruptcy.
The Bottom Line
Bankruptcy is flexible and nearly all of the bankrupts we assist are able to retain their vehicles when it makes sense for them to do so.