We frequently see customers with credit card debts and other unsecured debts like car loans. Many debtors own a car or truck when they file for bankruptcy. While the threat of bankruptcy is stark on its own, not having your own transport can derail your plans of achieving solvency. What you could be investing into monthly debt payments will go towards your public transportation costs, and we all know that can get expensive and inconvenient.
On the other hand, you should cut your losses and start afresh, including letting go of your exorbitant car payments. Whatever the reason, this guide is here to help you navigate a consumer proposal and help you make the right choice.
Before filing a consumer proposal, you must decide how your auto loan or lease will affect your finances. Here’s what to expect if you want to keep the car, return it, or cancel an expensive lease or loan.
The most important thing to remember is that a consumer proposal does not affect your right to keep your car. In fact, it is up to you whether you want to keep your vehicle or not.
Which financial obligations are not eligible for a consumer proposal?
It’s important to remember what types of debts can be included in a consumer proposal.
- Unguaranteed individual loans
- Cash advances
- Credit lines
- Loans with exorbitant interest rates, like payday advances
- Repayment of student loans (after an absence of seven years or longer)
- Unpaid income taxes
A consumer proposal will typically allow you to discharge all unsecured debts. You can only owe up to $250,000 (not including your primary residence mortgage).
In the event of a consumer proposal, what happens to a vehicle loan?
Debts secured by an asset, such as a car or a house, cannot be included in a consumer proposal. This means you can keep your vehicle so long as you make your payments on time each month. If you default on a loan or lease payment, your secured lender can still take back the vehicle.
Consumer proposals do not include secured debts like auto loans or leases. If you want to keep your car, this is good news. A consumer proposal will not affect your car if you continue making timely payments on your auto loan.
What happens if you cannot make your vehicle loan payments each month?
Car loans are equally necessary sometimes and a hassle to keep up with. If you need help making auto loan payments and starting to fall behind, consider surrendering the vehicle. Get in touch with your lender for a voluntary repossession of your car.
And if you are worried about surrendering your vehicle, there is another reason you let your car be repossessed. Most Canadians have a larger auto loan than their vehicle is worth. In 2022, almost 19% of bankrupt Canadian-owned vehicles had negative equity. They had an average deficit of $9,348. Surprised? You shouldn’t be; everything you buy on interest-based payments costs you more long-term! This is why many financial counsellors recommend saving for a vehicle or purchasing a used one in good condition. Your car loan payments can make a massive dent in your income.
Thanks to a consumer proposal, you can get out of a terrible vehicle loan deal and list the remaining balance on your credit report as an unsecured obligation. This is the practical effect of a consumer’s suggestion on paying off a car loan. You can get scot-free out of a deal possibly costing you thousands of dollars and lessen your carbon footprint (look to the bright side!)
During a consumer proposal, can one refinance an auto loan?
It’s natural to consider refinancing your auto loan if you’re having trouble making payments but don’t want to give up your car. Why would you like to let go of something you have invested much time in? If you can make the payments and don’t mind the interest rate, you can refinance your automobile loan during a consumer proposal, but only with your lender’s permission.
There is a catch, however. A consumer proposal will temporarily lower your credit score, which could prevent a lender from approving your loan application. Purchase a cheaper car or refinance before submitting your request.
Now that you have decided to refinance your car, there is another caveat that you should be aware of. Your lender will refinance your car loan by extending the loan period, which is true, but at a higher interest rate. Auto loans with smaller monthly payments can be easier on the budget, but consider this: In the long run, you’ll end up paying more in interest and keeping the loan for longer than your car is worth. The likelihood of incurring negative equity debt and the subsequent necessity for an expensive loan rollover rises exponentially.
Consumer proposals offer a valuable lifeline to people seeking relief from their unsecured debts and a chance to reboot their financial journey. If you find yourself with all other debts settled yet facing a hefty burden on your car loan, your monetary stability could be at stake. But worry not! There’s a savvy strategy to consider for those embarking on a consumer proposal and determined to keep a car. Why not voluntarily surrender your current vehicle and search for a more affordable car with a shorter financing period of three to four years? This way, you’ll be well on your way to securing a brighter financial future!
When I file a consumer proposal, how long will it take to receive a car?
Congratulations on successfully completing your consumer proposal! When purchasing a car, it’s essential to consider your financial status and credit score, as they will influence the process. To ensure reasonable interest rates on an auto loan, focus on improving your credit and consider making a substantial down payment.
Given your status as a consumer proposal filer, are you anxious that you will not have access to a car? There is nothing to worry about; specialized auto lending companies cater to individuals who have completed the consumer proposal process. While the initial interest rates might be slightly higher, responsible loan management can lead to gradual reductions over time. If you’re unsure where to find a car loan, seeking assistance from a Licensed Insolvency Trustee is a reliable option.
After settling your debts, exercise caution when considering new financial commitments and aim to maintain a low debt-to-income ratio. Keeping a mindful approach to your finances will help you remain on the path to long-term stability. Once out of the cycle, stay out of the cycle.
The Takeaway:
When it comes to dealing with vehicle loan debt in a consumer proposal, the rules aren’t set in stone—it’s all about your unique financial journey and preferences. So, if those car payments are giving you a bit of a headache, why not explore some alternative modes of mobility? If the payments are manageable within your monthly budget, then keep possession of your car keys.
Before you hit the pedal on any significant decisions, it’s wise to consult a Licensed Insolvency Trustee. These professionals are well-versed in all things financial and will guide you in the best possible manner. Reach out to Dana MacRae – licensed insolvency trustee, for a free consultation and tailored financial advice to get you back on the ground.