Can I Keep My Car?

One of the most asked questions by debtors seeking solutions to their financial problems is, “Can I keep my car?” In Manitoba, the Executions Act of Manitoba provides an exemption from seizure of a motor vehicle by a creditor, or in a Bankruptcy. This exemption has one condition in order to apply:  the vehicle must be used in the course of your trade or business, or be required to get to and from work. There is a maximum value of $3,000.00 for this exemption.  That covers some cars if they are a few years old.

Newer cars are often subject to security agreements or chattel mortgages. In these circumstances, creditors can seize a car if payments are not made. Usually, there is little equity left in a car which has a security agreement or mortgage against it. (Equity is the difference between the value of the vehicle and the amount owed.) Generally speaking, if the equity in the car is $3000 or less, then it will fall under the exemption and you will be able to keep it if payments are continued. If the car is fully encumbered, then the exemption is of no real value to you, since it is going to be a question of whether you can keep the car payments current or not.

One issue of importance to note:  secured creditors are required to register their security against your vehicle. If they fail to do so, or do so incorrectly, they may have no secured standing in a Bankruptcy, and instead of your continuing payments to that creditor, the car may have equity that needs to be realized for the benefit of all of your unsecured creditors. This can be done two ways — you could make payments to the Trustee to purchase the equity, or the car could be sold at auction. In both cases, the proceeds are held by the Trustee for the benefit of all your unsecured creditors.

Should I Keep My Car?

The question that probably should be asked more often is, “Should I keep my car?” This answer may depend on a number of factors. 

First to consider is where you live. For example if you are in an urban setting such as Winnipeg, the transit system may be adequate to get you to and from work. If you live in a rural setting and require the vehicle to get to and from work, you will need to retain a vehicle of some kind if car pooling is not a reliable option. 

Second to consider, is whether your work requires that you have a vehicle at work. If this is the case, the vehicle may need to meet specific requirements, in which case, your employment may depend on your owning a particular kind of vehicle, such as a truck. 

The third thing to consider is whether you can afford the actual vehicle you have. If you have determined that you need a vehicle, is this the one the best option for you? Is there a less expensive option? 

Fourth in consideration is whether the amount still outstanding on your vehicle loan is greater than the value of the vehicle. For example, if you owe $40,000 on a $15,000 vehicle, it really does not make sense to keep that loan active. Your bankruptcy (or consumer proposal) provides you with the opportunity to give up the vehicle, and the extra cost associated with it. The creditor will sell the vehicle, and because of the insolvency, you will not be responsible for the shortfall. Instead of paying $40,000 for a vehicle, if you require a vehicle, you should be able to purchase a similar vehicle for a much more reasonable cost. 

Lastly, consider the total cost of car ownership. An analysis of the cost of the car is not just what the payments to the creditor are, but also the cost of operating and maintaining the car. This includes gas and oil, and the cost of insuring the car as well as the cost of parking both at home and at work. 

Once you have determined exactly what the car costs you in a month, it’s a matter of deciding whether your resources are better spent on the car or on something else. Do you need the vehicle? If so, what can you afford to pay for it? You have to determine just how much convenience you can afford. After you go through this exercise, you may very well decide that you can actually live without your car, or that, by changing vehicles, you can have the same convenience at a much lower cost.

When Do I Make the Decision?

If you are filing an Assignment in Bankruptcy, or a Consumer Proposal, the time to decide what to do about your vehicle is at the time of filing. If you continue payments on the vehicle after filing, you will have re-committed to the debt, and it cannot be written off with your other debts. This is one issue that you will want to discuss at length with your Trustee before you proceed. It may even be a deciding factor in whether you file a Bankruptcy or a Consumer Proposal.  

Give us a call to meet with one of our Licensed Insolvency Trustees to discuss all the options available to you.  It is always important to get all the information you need before deciding what your best approach to dealing with your debt will be. 

 

Leigh C. Taylor, LIT

Leigh has been working in the insolvency field since 1975. He is a graduate of the University of Manitoba. Leigh began his career as an Official Receiver with the Office of the Superintendent of Bankruptcy. He is a Certified Professional Accountant, and he attained his license as a Licensed Insolven Read More Leigh has been working in the insolvency field since 1975. He is a graduate of the University of Manitoba. Leigh began his career as an Official Receiver with the Office of the Superintendent of Bankruptcy. He is a Certified Professional Accountant, and he attained his license as a Licensed Insolvency Trustee in 1980.Leigh has been a member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) since its inception. He is a Past President of several organizations, including the Manitoba Association of Insolvency and Restructuring Professionals (MAIRP), the Armstrong Point’s Association, and the Manitoba Opera. In addition, he has served for numerous years in leadership roles in Winnipeg churches. Close