If you’re thinking about filing a consumer proposal in Canada, one of the first questions you might have is what happens to your car. The good news is that most people keep their car in a consumer proposal. How it works depends on whether you own the car outright, have a loan, or lease it, as well as the rules in your province.
Here’s what you need to know before making any decisions.
Jump to:
- What happens to my car in a consumer proposal?
- What happens if I can’t afford my car payments?
- How can a licensed insolvency trustee help you keep your car?
What happens to my car in a consumer proposal?
Whether you keep your car in a consumer proposal depends on three main things:
- Who owns the car (you or the lender)
- Your province’s vehicle exemption limits
- Whether you can afford the ongoing payments
Here’s how it usually breaks down:
- Owned outright (no loan): If the car’s equity is below your province’s exemption limit, you keep it. If it’s above, you might need to pay the difference into your consumer proposal to keep the vehicle.
- Financed vehicle (secured loan): The lender’s rights stay in place. Keep up with payments, and you typically keep the car. Fall behind, and the lender can repossess it.
- Leased vehicle: Stay current on payments, and you usually keep the lease. If you hand it back, any shortfall after resale becomes unsecured debt and can be included in your proposal.
What happens if I can’t afford my car payments?
If you can’t afford your car payments, you can either keep the car by refinancing or adjusting payments, or surrender it and include any shortfall in your consumer proposal. Here are the main options:
- Voluntary surrender: Return the car. Any shortfall after the lender sells it becomes unsecured debt (depending on your province), which can be included in your consumer proposal.
- Replace with a cheaper vehicle: Some people switch to a lower-cost car after surrendering the first one.
- Refinance or extend the term: This might reduce monthly payments, though total costs may rise.
- Speak to your trustee early: They can help you review the numbers before you miss payments.
How can a licensed insolvency trustee help you keep your car?
A Licensed Insolvency Trustee (LIT) is the only professional who can file a consumer proposal for you. They will:
- Review your car’s value, loan details, and provincial exemptions
- Explain your options for keeping, surrendering, or replacing the vehicle
- Include any shortfall from a surrendered car in your proposal if needed
- Handle negotiations with creditors and lenders
- Make sure all fees follow federal regulations and are built into your plan
- Offer aftercare through required financial counselling sessions
With their help, you can make a clear decision about your car and your debt relief options.
Example case study: How Sarah managed her car during a consumer proposal
Let’s say Sarah owned a car with a loan balance of $18,000, but the car’s market value had dropped to $12,000. That means she has negative equity of $6,000, and she owes more than the car was worth. When her monthly payments became unmanageable, Sarah met with a Licensed Insolvency Trustee. Together, they looked at her options:
- Keeping the car by continuing payments: Not realistic based on her budget
- Voluntary surrender: The lender would sell the car, and any remaining balance would become unsecured debt, depending on your province. In some western provinces, “seize or sue” applies, meaning if they get the car, they cannot ask for a shortfall.
- Consumer proposal: Reduce the unsecured debt through one affordable monthly payment.
Sarah chose to surrender the car. After the lender sold it, the remaining balance was $6,000. That amount became unsecured debt and was included in her consumer proposal. Her consumer proposal settled the shortfall to $1,800 over a fixed term. This reduced her debt stress, freed up her budget, and let her buy a more affordable used car without falling behind again.
Say goodbye to your debt with Harris & Partners
If debt has taken over your finances, there are real, practical solutions available. From bankruptcy to consumer proposals, help is out there. And the sooner you act, the more options you’ll have. Take the first step today; book a free consultation or speak to a trusted debt relief advisor in your area.
