Key Takeaway
You can keep your owned vehicle and financed vehicle in a consumer proposal as long as you promise to continue to make your scheduled payments. However, there are circumstances where it may be advantageous to return your car upon filing a consumer proposal.
If you are considering filing a consumer proposal, a common question is, "Can I keep my car in a consumer proposal?" This question is important for those facing overwhelming debt and considering their options. A consumer proposal offers a way to manage debt without resorting to bankruptcy, but its impact on personal assets, including vehicles, is a common concern for many debtors.
Consumer proposals provide an alternative to bankruptcy that allows individuals to retain their assets while addressing their debt. This article explores how consumer proposals affect car ownership, comparing them to bankruptcy and discussing the role of car loans in the process. It also examines how individuals can make informed decisions about their vehicles when filing a consumer proposal and the importance of consulting with a Licensed Insolvency Trustee to understand all available options.
Consumer Proposals vs. Bankruptcy: Vehicle Considerations
Asset Treatment in Consumer Proposals
In a consumer proposal, individuals can keep assets, including their vehicles, regardless of their value. If the car is owned outright, it remains with the owner. For financed or leased vehicles, the payments can continue as usual. The vehicle's value is listed when determining the offer to creditors, but the trustee has no interest in seizing it. This protection extends to all assets, making consumer proposals attractive for those wanting to retain their possessions.
Asset Treatment in Bankruptcy
Bankruptcy has more complex rules regarding vehicles. Each province sets exemption limits for assets, including cars. In Ontario, for example, the vehicle exemption is $7,117. If a car's value exceeds this amount, the owner must surrender it or pay the difference to the trustee. For financed vehicles, the exemption applies to the owner's equity. If the equity falls within the exemption limit, the trustee typically allows continued payments to keep the vehicle.
Why Consumer Proposals May Be Preferable for Car Owners
Consumer proposals offer more flexibility and asset protection compared to bankruptcy. They allow individuals to keep their vehicles without the risk of seizure, regardless of value. This feature, combined with the ability to reduce overall debt and make manageable monthly payments, makes consumer proposals an appealing choice for many car owners facing financial difficulties. However, it's important to consult a Licensed Insolvency Trustee to determine the most suitable option based on individual circumstances.
Navigating Car Ownership in a Consumer Proposal
Fully Owned Vehicles
In a consumer proposal, individuals can keep their wholly owned vehicles regardless of value. The vehicle's current market value must be disclosed in the list of assets.
Vehicles with Outstanding Loans
For financed vehicles, individuals can continue making payments as usual. Banks and financial institutions are primarily interested in receiving monthly payments rather than repossessing the vehicle. It's essential to maintain these payments to avoid default and potential repossession. Cancelling existing finance agreements when filing a proposal should be part of the proposal process; if done afterwards, then it may not included in the proposal. Any remaining amount owed after the sale of the vehicle by the secured creditor becomes unsecured debt.
If considering a new car loan during a consumer proposal, individuals should inform their trustee, who can reassure finance companies of their payment responsibility, if required.
However, if your car payments are too high and you would like a less expensive vehicle, you could return the vehicle as part of filing your consumer proposal. Any debts still owing on the vehicle after the financing company sells it will be included in the consumer proposal or bankruptcy.
Leased Vehicles
Leased vehicles can also be retained in a consumer proposal. Individuals must inform their trustee about lease terms and monthly payments. They can also be cancelled by returning the vehicle to the lender, and any costs associated with the early termination of the lease would be included as a debt in the consumer proposal or bankruptcy.
Making Informed Decisions About Your Vehicle
Assessing Your Transportation Needs
When facing financial difficulties, it's crucial to evaluate transportation requirements. Does it make sense to keep your current vehicle if the payments are too high for your budget?
Evaluating Your Car's Value and Payments
Individuals can keep their vehicles in a consumer proposal if payments are maintained. However, it would be best to determine in your budget whether it is better to have no vehicle or find a less expensive vehicle before filing a consumer proposal.
Exploring Alternative Transportation Options
If car payments strain the budget, consider voluntary repossession. The shortfall after selling the car becomes unsecured debt included in the consumer proposal. Alternatively, explore public transit or car-sharing services to reduce transportation costs while managing debt.
Conclusion
Understanding the ins and outs of keeping your car during a consumer proposal is important for making informed financial decisions. Consumer proposals offer more flexibility than bankruptcy, allowing you to keep your vehicle regardless of its value as long as you maintain payments. This approach provides a lifeline for those facing overwhelming debt and needing reliable transportation.
To get a clear picture of your options, it's wise to chat with a Licensed Insolvency Trustee. They can help you weigh the pros and cons of consumer proposals versus bankruptcy, and guide you through the process of assessing your transportation needs. Remember, every situation is unique, so getting personalized advice is key. To take the first step towards managing your debt while keeping your wheels, why not book a free consultation with Litvack Group to review your finances and explore ways to reduce your debt?
FAQs
Am I able to retain my assets when I file a consumer proposal?
Yes, in a consumer proposal, all your assets are protected. Unlike bankruptcy, where you might be required to surrender some property, a consumer proposal allows you to retain all assets.
Is it possible for creditors to seize my car in Canada?
Yes, Â if you fail to make your scheduled payments to the vehicle financing company, they can repossess your vehicle. Also, if you fail to pay your unsecured debts, creditors can obtain a Writ of Seizure or a Writ of Execution against your vehicle. This means they could seize your car due to unpaid, unsecured debts.
What types of debts cannot be included in a consumer proposal?
Secured debts, loans backed by collateral such as a home or car, cannot be included in a consumer proposal. This includes mortgages and car loans. You can keep the collateral asset as long as you continue to meet the payment obligations.
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