Whats The Difference Between Financing And Leasing A Car
In both scenarios, youre making regular payments to a lending company. The major difference between financing and leasing a car, however, is that with financing, youre making those payments to own the car. Once youve completed the loan, the car is yours.
With leasing, youre making payments to borrow the car not to own it. You pay a car dealership monthly fees for as long as you intend to use the car. When you want to stop leasing it, the dealership will take the car back, end your payment plan and check if you owe extra funds based on mileage allowance, cleaning fees or damages. Its not your property.
Can You Keep Your Vehicle If You Go Into Bankruptcy
If you need to file for bankruptcy, one of the questions you may have is whether you will keep your vehicle. In some cases, the answer is yes.
There are a few different ways that you may keep your vehicle as you go through bankruptcy. Make sure that doing so is within your budget and that its realistic to keep paying on a loan if you have one.
How The Current Recession Is Unique And Devastating
Back in June a World Bank report spelled out how this recession is different from all others. Its the first global recession every caused solely by a pandemic. The overall global economy is expected to shrink by 5.2% in 2020, which is the worst decline since WWIIs devastating impact on the global economy. It also hit faster and harder than any previous recession. For all intents and purposes, national economies literally shut down overnight in a wave that went all around the world. And in spite of everyones best efforts, theres no end in sight until safe, effective vaccines or treatments become widely available.
For the US, the National Association for Business Economics sees a very slow recovery. Economists are saying that GDP wont get back to its pre-COVID level until at least 2022 or even 2023, and same goes for job growth reaching pre-pandemic levels. In fact, many believe that as many as 40% of pandemic business closures will become permanent. According to the Bureau of Labor Statistics, unemployment spiked up to 14.7% in April, and although its been falling since then down to 8.4% in July, theres still a long way to go to get back to the 3.5% unemployment rate we had in February before the pandemic hit, and economists are saying its going to take years to fully recover.
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Exemptions For Your Home
In British Columbia, homeowners exemptions are higher if you live in Vancouver or Victoria. In this case, $12,000 of the equity in your home is protected in Greater Vancouver and the Victoria capital area. Elsewhere in the province, $9,000 in home equity is exempt from bankruptcy. For more information on bankruptcy exemptions in British Columbia, you can request a call from a local Licensed Insolvency Trustee.
What Happens To Your Car In Chapter 13 Bankruptcy
Another form of bankruptcy is Chapter 13, which works a bit differently from Chapter 7. Rather than liquidating non-exempt assets to repay creditors, you’ll enter a debt repayment plan. Your property isn’t sold off with this form of bankruptcy instead, your finances are reorganized and you’ll begin the process of repayment. If you own your car outright you’ll be able to keep it.
You will have a repayment period of either three or five years, and once that period ends, some remaining debts can be dischargedmeaning you don’t have to pay them anymore. Not all debts can be discharged, however. Credit card and medical debt can be discharged, for example, but mortgages and student loans cannot.
When you file Chapter 13 bankruptcy, your debt is grouped into three buckets:
- Priority debts: These must be repaid in full. This includes bankruptcy costs, unpaid tax bills from the past three years, and child and spousal support.
- Secured debts: Car loans are included in this category. If you have a car loan, the amount you owe on it may be reduced in the Chapter 13 bankruptcy process if you owe more on it than its current value. Also, if you can qualify for a repayment plan and get caught up on your loan, you may be able to keep the vehicle.
- Unsecured debts: These will be discharged in the bankruptcy after you’ve completed your repayment plan.
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If You Fully Own The Caryou Lose It In Bankruptcy If Its Worth More Than A Certain Amount
If there is no loan or lien on your vehicle, then your bankruptcy trustee will assess your vehicles value. In most provinces across Canada, if you go bankrupt, you get to keep one vehicle that is worth up to a certain amount depending on your province. Here are the maximum vehicle values for the following provinces:
- Ontario: $6,600
- Manitoba: $3,000
- Saskatchewan: $10,000
If your vehicle is assessed and found to be worth more than the allowed maximum in your province, you can redeem it from being taken in the bankruptcy by paying the difference between its appraised value and the maximum limit. So if your province allows you to keep a vehicle worth up to $5,000 and yours is appraised at $6,000, you could pay your trustee the $1,000 difference. He or she would then put this $1,000 into the pool of money that they would send to your creditors. You would then get to keep your car and not lose it in the bankruptcy.
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Chapter 13 Repayment Plans
If you file a Chapter 13, you can continue making your payments according to their terms, or add the payments into your payment plan. If you owe more than the car is worth, or if your interest rate is high, you can alter the terms by paying only what the car is worth and at a reasonable interest rate over the length of the plan, usually 35 years. This is called a cramdown, and it’s used every day to help people like you keep their cars despite filing bankruptcy.
Unsecured Vs Secured Debts
It is important to remember that bankruptcy does not relieve your obligation to cover secured debts. The point of bankruptcy is to offer financial freedom by forgiving unsecured debt. On the other hand, secured debt is previous obligations that you must pay regardless of your financial status:
- Unsecured Debt: Types of loans where the lender has no recourse to come after your assets, like a car or home.
- Secured Debt: Types of loans where you not only agree to make payments, but the lender may come after your assets if you fail to make payments.
A secured lender may take your property and sell it to satisfy the loan in the event of a default. Filing for bankruptcy does not relieve you of secured debts unless you agree to surrender the property that serves as collateral for the loan.
Consequently, victims of bankruptcy can only keep their house and car if they can still afford to make the monthly payments on the loans.
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How To Claim Your Exemptions
To claim your Chapter 7 bankruptcy exemptions, you must list them under your Schedule C: The Property You Claim As Exempt. Itâs important to list all the property that you want to protect on your Schedule C.
Anything that you do not claim as exempt, regardless of if itâs eligible for protection or not, will not be counted as exempt. This means that even if your property falls within your exemption limit but you do not claim it, your bankruptcy trustee is still allowed to sell it.
Northwest Territories / Nunavut / Yukon Exempt Property
The above exemptions for the territories do not apply if:
- You are behind on child or spousal support payments.
- You have absconded or are about to abscond from the territories, leaving no spouse or family behind.
A Licensed Insolvency Trustees is your trusted resource for current information on insolvency solutions, and factors that may affect your specific situation. Contact a Licensed Trustee today. Your first appointment is free, and your discussion is confidential.
Find a local trustee that you can rely on. We have trustees everywhere from British Columbia to Ontarioand more.
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Does It Depend On The Type Of Bankruptcy
The type of bankruptcy you go with will significantly affect what happens to your car. If you file for Chapter 7, youll be able to keep your vehicle as long as local bankruptcy laws exempt all your equity and youre up to date on your loan payments.
To figure out how much equity you have in your car, take your loan balance and subtract it from the value of your car. Note that if youre close to the end of your term, you may not have a lot of equity as vehicles depreciate quickly.
After you know how much equity you have, find the motor vehicle exemption in your state. If you have less equity than the exemption limit, you shouldnt have any issues keeping your car. Because Chapter 13 involves a debt repayment plan and doesnt liquidate assets to repay creditors, your property wont be sold. This means if you own your car, it will likely be yours to keep.
Bankruptcy May Not Be Your Only Option
Its smart to remember that when it comes to overwhelming debts, bankruptcy is not the only option.
For most people, it is often the last option, and there are many other possibilities to explore before you get to this point.
The good news is that our experts at bankruptcycanada.com are well versed in all the paths open to you if you are struggling with debt.
They are adept at assessing your financial situation and finding the solution that will fit your needs best too.
Whether that is bankruptcy or one of the many others on offer.
In fact, all you need to do is take the first step and give us a call on 1-877-879-4770 or fill in the enquiry form.
Then we can be with you every step of the way on your journey to debt freedom.
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When Youve Paid Off Your Vehicle:
Once you complete a car loan, your secured debt is paid. The vehicle is now an asset under your ownership which means that it could be collected and sold during your bankruptcy. It depends on the value of your vehicle.
Your vehicle is exempt from bankruptcy in Ontario if it has a net value of $6,600 or less. If your vehicle is appraised and meets this standard, you can keep it. If it has a higher value, then you have two choices:
- You can allow it to be sold as an asset for your bankruptcy.
- You can pay your trustee the portion of funds that crosses the exemption limit to maintain access to your vehicle. So, if your vehicle is worth $7000, you can subtract the exemption limit of $6,600 and pay the remaining $400 to your trustee.
Its important to know that you can only do this with one vehicle. If you have two or more vehicles, you will have to choose one to keep in your possession and have the rest sold during the bankruptcy. Ideally, you should choose a vehicle thats in good condition and within the provinces exempted value.
Can You File Bankruptcy And Keep Your Home And Car Do They Take Your Car If You File Bankruptcy
Can I keep my car if I file bankruptcy in Ontario is also a common question. The answer is if you need to or want to and can afford to, then yes. Let me explain. The most common range of situations involving a person filing for bankruptcy and their car are:
- The auto is leased.
- There is a car loan outstanding and is secured against the automobile.
- Car is free and clear of any financing.
- Auto is owned by the employer.
- Spouse owns the vehicle.
If the wheels are owned by an employer, then there is no issue. If you file for bankruptcy, the employment continues and access to the company automobile also does.
If the auto is owned by your spouse, then it is not your asset and is not directly impacted by your bankruptcy. In the case of a leased automobile, the vehicle is owned by the lessor, not you. So again, a leased car is not directly impacted by your bankruptcy.
However, if the car is leased, do you really need that specific car? Can you keep up with your lease payments? If you fall behind in payments, the lessor can retrieve its vehicle, bankruptcy or no bankruptcy.
In the case of where your car is financed, whether it is owned by you or your spouse, the same question remains. Can you afford to keep up the payments as part of the household budget? Do you need that specific vehicle?
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Pay And Drive In Bankruptcy Law
You may have heard of the concept of pay and drive in bankruptcy law. The law allowed drivers to keep their vehicles as long as they stayed current on payments. Pay and drive hasnt been a part of bankruptcy law since 2005. You must pursue one of the other options to keep your vehicle in a Nevada bankruptcy.
Is Your Car Equity Exempt
Each state allows bankruptcy filers to keep certain types of property up to a certain dollar limit. Almost all states provide some type of motor vehicle exemption. The amount exempted varies tremendously — it could be as little as $500 or as much as several thousand dollars . To learn how much the motor vehicle exemption is in your state, see Bankruptcy Exemptions: What Do I Keep When I File for Bankruptcy?
If your equity in the car is significantly more than the applicable motor vehicle exemption amount, the trustee may sell your car, give you your exempt portion, and use the remaining proceeds to pay your unsecured creditors.
In this situation, however, you may be able to use another exemption to make up the difference, get the trustee to accept other nonexempt property in return for keeping your car or pay the trustee the amount of the nonexempt equity of your car.
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What If You Owe More Than Fair Market Value Or You Cant Afford The Payments
If you have a significant shortfall on your car, it may be prudent to simply surrender the car to the lender when you go bankrupt so that you are not overpaying for the vehicle. If you think your car loan or lease is too expensive, and you cant afford to keep up with your payments, you have the option of handing back the vehicle to the lender.
In either case, you must return the vehicle to lender before you file. If you do surrender the car to the secured lender, any resulting shortfall after they sell the vehicle is eliminated as part of your bankruptcy.
In rare circumstances, people sometimes offer their vehicle as collateral for a larger consolidation loan. This is slightly more complicated however a trustee can walk you through options that can help you keep the vehicle if that makes sense.
File A Consumer Proposal To Keep Your Car And Other Assets
A consumer proposal is not a bankruptcy. In a proposal you make a settlement offer to repay a portion of your debts. Any offer you make is affected by assets you own that are not exempt in a bankruptcy. However, in a consumer proposal, you keep all your assets, including your car and your home.
A proposal may make more sense if you:
- Own multiple vehicles
- Own a car or truck worth more than the allowable limit
- Can afford to make a settlement offer to your creditors.
If you are struggling with debt, know that you dont lose everything when you claim bankruptcy. Book a free, no-obligation consultation with one of our Ontario Licensed Insolvency Trustees to explore your options.
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Qualifying For State Exemptions
The state you file for bankruptcy in is usually determined by the state you have lived in for the past two years.
If you haven’t lived in any state for at least two years, however, your place of âresidenceâ will likely be the place where you spent the majority of your time for the six months leading up to two years ago.
Hereâs an example: Say you have been living in Arkansas for the past year and a half. Before living in Arkansas, you lived exclusively in Texas for 4 years. Because you haven’t been living in Arkansas for the required two years, you will be counted as a Texas resident.
This means that you will choose between Texas’ Chapter 7 bankruptcy exemptions or the federal bankruptcy exemptions.