How to File for Bankruptcy & Keep Your Car

Filing for bankruptcy is a tough decision, but it does not have to mean losing everything, including your car. For many, a vehicle is essential for daily life, whether for commuting to work, running errands, or ensuring that family members get where they need to go. 

In Alberta, you can typically keep your car during bankruptcy if its equity value does not exceed the provincial exemption limits and you continue making any required auto loan payments. It is important to consult with a Licensed Insolvency Trustee (LIT) to navigate these specific conditions effectively.

Understanding the Basics of Bankruptcy

Bankruptcy is a legal process that provides relief to individuals overwhelmed by debt, and allows them to eliminate most of their debts and start fresh. But the thought of losing assets—including a vehicle—can be stressful.

In Alberta, bankruptcy is governed by federal laws under the Bankruptcy and Insolvency Act (BIA). When you declare bankruptcy, an LIT manages your case. The trustee may sell your non-exempt assets to pay off your creditors. But not all your assets have to go. Alberta has specific exemptions to help you retain essential belongings, including your car.

The Role of Bankruptcy Trustee & Your Responsibilities

A bankruptcy trustee plays a vital role in managing your bankruptcy case. Here is what you need to know about their responsibilities and yours:

The Trustee’s Responsibilities

1. Assessing Your Financial Situation: The trustee will review your financial records, including your debts, assets, and income, to determine the best course of action.
2. Filing Necessary Documents: The trustee handles all paperwork and communication with the Office of the Superintendent of Bankruptcy (OSB) and your creditors, ensuring compliance with legal requirements.
3. Managing Your Assets: The trustee will oversee the sale of your non-exempt assets, distributing the proceeds to your creditors.

Your Responsibilities

1. Providing Accurate Information

It is crucial to provide your trustee with accurate and complete financial information. Any discrepancies can complicate your case.

2. Attending Credit Counseling Sessions

Participating in mandatory credit counselling sessions is essential for your financial recovery. These sessions offer valuable insights into managing your finances post-bankruptcy.

3. Making Required Payments

Depending on your income, you may need to make surplus income payments during your bankruptcy. Your trustee will explain this requirement and how it applies to your situation.

Exemptions: How to Keep Your Car & Other Assets

One of the biggest concerns when filing for bankruptcy is losing your assets, particularly your car. The good news is that Alberta has specific exemptions to help you keep essential belongings.

Bankruptcy exemptions allow you to retain certain assets up to a specified value. These exemptions ensure you can maintain a basic standard of living during and after bankruptcy.

Vehicle Exemptions

In Alberta, you can keep a vehicle worth up to $5,000 or equity in a financed vehicle of the same amount.. If your car’s value exceeds this amount, you may be required to pay the difference into your bankrupt estate or surrender the vehicle.

Other Exempt Assets

Besides your car, Alberta’s exemptions include equity in your home, personal belongings, tools of the trade, and specific pensions and insurance policies.

Strategies to Keep Your Car

1. Valuing Your Vehicle: Work with your trustee to determine your car’s fair market value. If it is close to or under $5,000, you can keep it without any issues.
2. Negotiating with Creditors: If your car’s value exceeds the exemption limit, your trustee may help negotiate with your creditors. They might agree to accept payments to cover the excess value, allowing you to keep your vehicle.
3. Exploring Alternatives: If keeping your car is not feasible, consider selling it before filing for bankruptcy. Use the proceeds to buy a less expensive vehicle that falls within the exemption limit.

Rebuilding Your Credit After Bankruptcy

Emerging from bankruptcy offers a fresh start, but rebuilding your credit and financial future requires effort and discipline. Here are some steps to help you get back on track:

Create a Budget

A well-structured budget is essential for managing your finances post-bankruptcy. Track your income, expenses, and savings to ensure you stay within your means and avoid falling into debt again.

Establish an Emergency Fund

Building an emergency fund can provide a financial safety net for unexpected expenses. Aim to save at least 3 to 6 months’ worth of living expenses in a separate, easily accessible account.

Rebuild Your Credit Score

Rebuilding your credit score is crucial for future financial opportunities. Here are some strategies to help:

1. Secured Credit Cards: Apply for a secured credit card, which requires a cash deposit as collateral. Using it responsibly and paying off the balance in full each month can help improve your credit score.
2. Timely Bill Payments: Ensure you pay all your bills on time, including utilities, rent, and any remaining debts. Consistent, timely payments demonstrate responsible financial behaviour.
3. Monitoring Your Credit Report: Regularly check your credit report for errors and ensure that any discharged debts are accurately reported. You can request a free annual credit report from each of the major credit bureaus.

Real-life Tips for Bankruptcy

Navigating bankruptcy can be challenging, but learning from others who have gone through the process can provide valuable insights. Some key things to keep in mind during this process include:

• Stay Organized: Keep all your financial documents, correspondence with your trustee, and records of payments organized. This will help you stay on top of your responsibilities and avoid any misunderstandings.
• Communicate with Your Trustee: Maintain open lines of communication with your trustee. They are there to help you through the process and can provide guidance and support when needed.
• Focus on the Future: Remember that bankruptcy is a temporary situation. Focus on rebuilding your financial future and making positive changes to avoid repeating past mistakes.

Get Trusted Bankruptcy Advice

Filing for bankruptcy in Alberta does not mean losing everything. By understanding the process, working with a licensed insolvency trustee, and taking advantage of exemptions, you can protect your essential assets while also starting fresh.

If you are facing financial difficulties and considering bankruptcy, do not be afraid to seek professional help. Contact A.C. Waring & Associates to discuss your options and receive personalized guidance on managing your financial situation. Together, we can help you regain control of your finances and build a brighter future.