Throughout Ontario, and in fact everywhere in North America, people drive cars, and they worry that they will lose their car if they file for personal bankruptcy. The rules are different in every province and state, so this article only covers the law in Ontario, Canada. Consult your advisor for the rules in your area. In Ontario, if you go bankrupt, effective June 22, 2006 you are permitted to keep one motor vehicle worth up to $5,650.

If you owned, for example, a vehicle that had an appraised value of $6,650, you could pay $1,000 into your bankruptcy estate and keep your vehicle. (This example assumes that there are no liens against your vehicle; if you owe money against the vehicle, you would have to make pay the lender to keep the vehicle).

If you wanted to pay the $1,000 to keep the vehicle, the money could come from your earnings after you file bankruptcy, or you could borrow the money from friends or family (provided they understood that you were bankrupt). If you owned a vehicle worth $9,650, and you could not afford to pay to your trustee the $4,650 necessary to keep the vehicle, the trustee would sell the vehicle. However, according to the Ontario Executions Act, paragraph 3(3):

Where exemption is claimed for a motor vehicle that has a sale value in excess of the amount referred to in paragraph 6 of section 2 plus the costs of the sale, the motor vehicle is subject to seizure and sale under a writ of execution and the amount referred to in that paragraph shall be paid to the debtor out of the proceeds of the sale.

Therefore if you surrendered the vehicle and the trustee sold it, you would be entitled to receive the first $5,650 of the proceeds, and you could use that money to purchase another vehicle, because paragraph 4(4) of the Executions Act goes on to say that:

The sum to which a debtor is entitled under subsection 3 (1), (2) or (3) is exempt from attachment or seizure at the instance of a creditor.

Here's a final thought. If you do own a valuable car, instead of going bankrupt and losing it, another option is to file a consumer proposal so that you can keep your car. Clearly this is a complicated area, so if you own a car and are considering filing for bankruptcy in Ontario, you should contact a trustee and arrange for a no-charge initial consultation before you make any decisions.

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