Can I Keep My Car During a Consumer Proposal or Bankruptcy in Ontario? An LIT Explains

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As a Licensed Insolvency Trustee (LIT), one of the very first questions people ask me is: “If I file for bankruptcy or a consumer proposal, will I lose my car?”

It’s a completely understandable concern. For most people, a vehicle isn’t a luxury—it’s how they get to work, take their kids to school, attend appointments and manage everyday errands.

Here is the simple answer: Yes, you can usually keep your car during a consumer proposal or bankruptcy—even if your vehicle is not fully exempt.

The important thing to understand is that a vehicle being non-exempt does not automatically mean you have to give it up. Depending on your circumstances, there may be ways to deal with the non-exempt value while allowing you to keep your vehicle.

“Yes, Even If It Is Not Exempt” — How We Protect Your Car

If your vehicle is worth more than the applicable Ontario exemption, that does not automatically mean you have to give up your car.

Depending on whether you file a consumer proposal or bankruptcy, there may be ways to address the non-exempt value while allowing you to keep your vehicle.

Your LIT will look at:

• Your vehicle’s current value — What the vehicle is reasonably worth today.
• Any amount you still owe — The balance on your car loan or other secured financing.
• Whether the vehicle is owned, financed or leased — Different arrangements can have different legal implications.
• The applicable Ontario exemption — The current prescribed exemption for one motor vehicle is $8,578.
• Your overall financial situation — Your income, expenses, debts and other assets.

It’s helpful to know: A vehicle having non-exempt value does not automatically mean you have to surrender it. Depending on your circumstances, there may be options that allow you to address the non-exempt value and keep your car.

How the Ontario Vehicle Exemption Protects Your Car

Under Ontario’s Execution Act, certain property is protected from seizure by creditors. For motor vehicles, Ontario provides an exemption for one vehicle up to a prescribed amount. The current prescribed amount is $8,578.

Here’s what you need to know:

• One vehicle: The current Ontario exemption protects one motor vehicle up to $8,578.
• Over the exemption? Your car is not automatically surrendered just because its value exceeds $8,578.
• Your circumstances matter: In a bankruptcy, your LIT considers the vehicle’s value, secured debt and applicable exemption when determining whether there is non-exempt value to address.

For example, if you own a vehicle worth approximately $7,000 and have no loan against it, it may fall within the current exemption. If your vehicle has a higher value, there may be a non-exempt value that needs to be addressed as part of the bankruptcy.

Because every situation is different, an LIT should review your vehicle and any financing before you decide which debt-relief option is appropriate.

Keeping Your Car in a Consumer Proposal

A consumer proposal is a formal legal process administered by a Licensed Insolvency Trustee. It allows you to make an offer to your unsecured creditors through a lump sum or periodic payments over a period of up to five years.

If your proposal is accepted and you comply with its terms, you generally retain your assets, including your vehicle. The Office of the Superintendent of Bankruptcy (OSB) confirms that consumers can keep their assets under an accepted consumer proposal while continuing to meet their obligations to secured creditors.

For your vehicle, this generally means:

• You can keep your car: An accepted consumer proposal does not require you to surrender your vehicle.
• Vehicle value matters: Your vehicle’s value and your overall financial circumstances may be considered when developing an appropriate proposal.
• Non-exempt value does not automatically mean selling your car: Your LIT can assess your situation and help determine an appropriate proposal while allowing you to retain your vehicle.

Dealing With Non-Exempt Car Equity in Bankruptcy

Bankruptcy works differently from a consumer proposal. When you file for bankruptcy, non-exempt assets can form part of the bankruptcy estate for the benefit of your creditors.

If your vehicle has non-exempt value:

• You may still be able to keep your car: A vehicle being non-exempt does not automatically mean you have to surrender it.
• The non-exempt value may need to be addressed: Depending on your circumstances, you may be able to make an arrangement to account for that value by paying an agreed amount into the bankruptcy estate.
• Your LIT will explain your options: Your vehicle’s value, secured debt and overall financial circumstances will be reviewed.

For example: If the amount that needs to be accounted for is $2,000, your LIT can explain whether an arrangement to pay that amount over time is available in your circumstances.

The important point is that non-exempt does not necessarily mean you have to give up your car.

How an LIT Calculates and Reviews Your Vehicle

When you meet with an LIT, your vehicle is considered as part of your overall financial assessment.

The process may include:

1. Determining the vehicle’s value — Reviewing reliable information to establish a reasonable current value.
2. Reviewing financing and liens — Looking at your outstanding loan balance and security interest.
3. Considering the applicable exemption — Ontario’s current prescribed exemption is $8,578 for one motor vehicle.
4. Reviewing your options — Considering your income, expenses, debts and other assets when comparing a consumer proposal with bankruptcy.

Other Vehicle Situations to Consider

Your vehicle situation may involve more than its value and exemption. Here are a few common circumstances that can affect how your car is treated during a consumer proposal or bankruptcy.

What Happens to Your Car Loan?

A car loan is generally a secured debt, meaning the lender has rights against the vehicle.

If you want to keep your car:

• Keep making your payments: You generally need to remain current with your loan.
• Your loan remains secured: A consumer proposal or bankruptcy does not automatically eliminate the lender’s rights to the vehicle.
• If you surrender the car: The treatment of any remaining deficiency depends on the circumstances and insolvency proceeding.

Your LIT can explain your options before you decide.

What If You Own Two Cars?

Ontario’s vehicle exemption applies to one motor vehicle, not a separate $8,578 exemption for each vehicle.

If you own two cars, your LIT will consider:

• Each vehicle’s ownership and value
• Any financing or liens
• The applicable exemptions
• Whether you choose a consumer proposal or bankruptcy

What If You Lease Your Car?

A lease is different because the leasing company generally owns the vehicle.

• Want to keep it? Continue meeting the lease obligations as required.
• Want to end it? The consequences depend on the lease agreement and the circumstances of your insolvency filing.
• Important: Do not assume that every early-termination fee or lease-related charge will automatically be discharged.

Your LIT can review the lease and explain the potential treatment.

What Happens If Someone Co-Signed Your Car Loan?

A bankruptcy or consumer proposal generally does not eliminate a co-signer’s obligations to the lender.

If you keep the vehicle and remain current with your payments, the co-signer may not face collection action simply because you filed. However, if the vehicle is surrendered and a deficiency remains, the lender may still have rights against the co-signer.

Can You Get a New Car Loan After Bankruptcy or a Consumer Proposal?

There is no blanket legal prohibition against obtaining future credit after filing.

However:

• Lenders decide independently whether to approve financing.
• You may face higher interest rates or other lending conditions.
• The OSB notes that there are no guarantees a lender will provide credit after a consumer proposal.

If you need vehicle financing, discuss your budget and options with your LIT before taking on new debt.

In Summary: Consumer Proposal vs. Bankruptcy for Vehicle Owners

Here’s a quick recap to help you see how a consumer proposal and bankruptcy may affect your vehicle.

Let’s Find the Right Path Forward

If you’re struggling with debt, don’t assume that filing a consumer proposal or bankruptcy means losing your car.

Whether your vehicle falls within Ontario’s exemption or has non-exempt value, there may be options for dealing with the vehicle while addressing your unsecured debts.

A Licensed Insolvency Trustee can review your vehicle, financing, debts, income and household budget and explain how a consumer proposal or bankruptcy would affect your particular situation.

If debt is causing you stress, reach out to a Licensed Insolvency Trustee now. Call 1-888-545-5365 or book online to schedule a free, confidential consultation at any one of our GTA offices nearest you. Together, we will review your vehicle, evaluate your debts, and find the best legal path to give you a fresh financial start.

Contact Richard Killen
FREE No Commitment Consultation

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