Bankruptcy in Canada with Vehicle with Co-Signer

Category: Bankruptcy Q&A

Question: I am considering bankruptcy in Canada, however I have a car and a loan with a co-signer. I have never been delinquent with my payments, it is my only mode of transportation to and from work. Am I able to keep making the payments on my car without it affecting my co-signer, if I chose to file bankruptcy?

Answer: A car loan is a secured loan, because the loan is “attached” to the car.  This is different than an unsecured debt, like a credit card, because the credit card is not “attached” to any asset; it is unsecured.

There are two alternatives when dealing with a secured debt when you file bankruptcy in Canada, such as a car loan in bankruptcy.

Option #1: You can surrender the asset and stop making payments, and the resulting debt will be included in your bankruptcy.  In your case you could return the car to the lender; they would sell it and use the proceeds to repay the loan.  If any balance remained owing, that shortfall would be included in your bankruptcy.

However, because you have a co-signer, the lender could pursue the co-signer for whatever balance remains owing.

Option #2: You can continue to make payments on your secured debt, and keep the asset.  In your case this means that you would keep paying your car loan, and keep the car.  Because you are continuing to pay the loan in full, your bankruptcy should not impact on your co-signer.

This option only works if you are up to date with your car loan payments; if you are behind on payments, the lender can repossess the vehicle.

So, to answer your question, if you want to keep the car, and you have the ability to continue to make payments, you can continue to make the payments while you are bankrupt.