6 Ways to Avoid Car Repossession

Your car payment was due yesterday and you missed it. You didn’t make last month’s payment either. Maybe you’re having temporary financial difficulties. Maybe you had to deal with an unexpected expense. No matter the reason, now you’re afraid of receiving a visit from a bailiff at any moment. You want to avoid a car repossession at any cost. Here are some tips to help you keep your car.

Note: this post was updated on March 26, 2018.

1- Review the terms of the contract

If you have missed one or more payments, first take a look at the terms included in the purchase or lease contract for your car. Check to see if your lender has an instalment postponement policy. This could help you out and buy you some time.

Also, check the clauses related to late payment penalties. These vary according to the laws in effect in each province.

2- Make the missed payments

If a change in your financial situation allows you to do so, immediately cover all the missed payments. You may have to pay late fees. On the other hand, you won’t have to worry about having your car repossessed.

Also, think about identifying the reasons that led to your payments being late. If your financial problems were temporary, and are now resolved, all the better. However, if the situation persists, you should find a solution, otherwise car repossession may come up again. Licensed Insolvency Trustees (LIT) are there to help people find permanent solutions to their financial problems.

3- Make temporary arrangements

Ideally, you should contact your lender even before you miss a payment. If you know that you won’t be able to make your payment, notify them in advance. If possible, tell them the date you think you will be able to make the payment. First, this will limit their loss of trust in you. Second, it will indicate your desire to respect your commitment.

Demonstrating your transparency and being proactive will give you the best chances of catching a break from your lender. If you meet the newly set deadline, you will no longer run the risk of your car being repossessed.

4- Refinance your loan

If you are no longer able to pay for your car according to the contracted terms, you can try to refinance your loan. You can try to convince your initial lender or find a new one. Refinancing may be tempting, especially if it will allow you to reduce your payment amount. However, certain things will need to be taken into account. After all, you want to ensure that this solution is in your best interest. It has to help avoid having your car repossessed.

• Financing costs
  It is very likely that the interest rate will be higher than that of the initial loan, which will increase your total borrowing cost.
• Depreciation
  Generally, cars lose value rapidly. Ask yourself if it makes sense to refinance a loan for a three-to-five-year term if, for example, your car is already four or five years old.
• Down payment
  Will you have to make a down payment on the new loan?
• Other refinancing costs
  Will refinancing entail other costs such as penalties and miscellaneous fees? Consult your loan contract to learn what clauses apply in the case of refinancing.

If the terms of the refinancing loan seem advantageous to you, choose this option. Otherwise, you run the risk of simply making your situation worse.

5- The consumer proposal

If you are afraid your car will be repossessed and other solutions haven’t worked out, perhaps you are facing other debt problems as well. In that case, the consumer proposal may meet your needs.

First of all, understand that the consumer proposal does not directly impact your car loan. Nor does it allow you to reduce your payment amounts. However, the consumer proposal allows you to reduce all your other debts.

Somewhat similar to a debt consolidation, this solution allows you to group all your unsecured debts¹. Once your debts are combined, payments are calculated as a function of your budget. In addition, in the majority of cases, the consumer proposal allows you to reduce the amount of debt to be reimbursed.

By meeting a Ginsberg Gingras Licensed Insolvency Trustee you’ll learn if a consumer proposal can help you free yourself from debt. By evaluating your situation, the LIT can also determine if this solution will allow you to avoid car repossession.

The consumer proposal also puts an end to interest fees and prevents seizure of your salary and property.

6- Car repossession in case of a bankruptcy

If your financial situation is truly precarious, you may want to declare bankruptcy. In this case, there are two scenarios which would allow you to keep your car.

Avoiding car repossession in case of a bankruptcy

As long as your car loan is not completely reimbursed, the lender holds a lien on your vehicle. This means that only this lender has the right of repossessing the car.

In general, the majority of lenders agree to maintain their contracts with debtors in bankruptcy. This means that under these circumstances, as long as you respect the terms of the agreement you will avoid having your car repossessed.

However, if the value of your vehicle exceeds the value of the loan, the Licensed Insolvency Trustee may be required to sell it. To keep your vehicle, you will have to establish a payment agreement with the LIT.

Car repossession exemption rules

If you declare bankruptcy and your vehicle is completely free of debt, it will be subject to examination to determine if it must be repossessed or not.

Situation in Québec

In Québec, the Code of Civil Procedure (CCP) applies. As of January 2016, Article 695 of the CCP stipulates that no matter their value, motor vehicles are considered exempt from seizure if they are necessary to:

• maintain work income or an active job search;
• meet the basic needs of the debtor and the debtor’s dependents;
• ensure that the debtor and the debtor’s dependents receive the care required by their state of health;
• ensure that the debtor and the debtor’s dependents can pursue their education.

However, car repossession is possible if the debtor has access to public transit, a second vehicle or a replacement vehicle of lesser value.

Situation in Ontario

In Ontario, the Execution Act is clear and leaves no room for interpretation. It stipulates that a vehicle with a value less than $6,600 is exempt from seizure.

Help to avoid your car being repossessed

As you can see, there are many possible solutions and factors to take into account regarding the issue of car repossession. If you want the truth and avoid bad surprises, take some time to talk with a Ginsberg Gingras licensed insolvency trustee. In person or over the phone, consultation is free and without any obligation. Contact us right away.

¹ Unsecured debts are debts on which the lender does not have a lien. Credit card balances and personal loans, income tax debt as well as cell phone bills are good examples of unsecured debts. Conversely, mortgages and car loans are secured debts. Therefore, those types of debts cannot be included in a consumer proposal.