Voluntarily Giving Up Your Car in A Bankruptcy

Category: Personal Bankruptcy (12) comments

voluntary repossession bankruptcy

It’s not unusual for someone to find one of the reasons for their debt is having purchased beyond their means. In particular, we often see individuals who purchase more car or more home than they can afford. Could be their situation changed, or perhaps they over-purchased initially.

Filing bankruptcy is a way to deal with your debt problems – all of them and this can include taking care of a car loan or car lease that is just beyond your ability to afford.

If you have a vehicle loan or lease that you can no longer afford your car loan payments, you can return the vehicle to the loan holder before it is repossessed. Voluntary repossession must be done correctly and has financial implications if there is a deficiency.

How To Hand Back Your Vehicle

Essentially what you do is call them up, tell them that you can no longer service the loan or lease and ask them to come and pick up the car. The lender will arrange for a bailiff to pick up the vehicle.

A couple steps to consider if you do hand back your vehicle:

  1. It is important that the vehicle is where you tell them it will be.
  2. Remove all personal items and your license plates from the vehicle.
  3. Leave insurance on the vehicle until it is picked up as you are responsible for any damages to the vehicle while it is in your possession.

Financial Impact

Once the vehicle is picked up it will be taken to auction and sold. Usually the amount the car is sold for, minus selling costs, is not enough to repay the remainder of the loan and there is a deficiency. The lender will then contact you with the amount still owing on the car and request payment. This leftover amount owing is also referred to as a shortfall and shortfall debts are unsecured debts and will be included in your bankruptcy or consumer proposal.

Deciding to return a car can be a very difficult decision. One of the values of discussing your options with a trustee is that it forces you to take a long hard look at your monthly finances.  It becomes obvious very quickly if your car is a greater burden then you can afford when you begin to list all of your monthly costs but, you must be aware that if you remove your vehicle from your monthly budget you must have a transportation plan in place to replace it whether that be a different vehicle, taking the bus or sharing a car with a friend or family member.

Contact a trustee to talk about your options. Whether you choose to keep your car, or return it, we can help you run the numbers. If you haven’t returned your vehicle yet, talk to your trustee about the timing to ensure that you shortfall will be included in your bankruptcy or proposal.

Leave A Comment

    1. J. Douglas Hoyes

      Hi Kimberlee. Yes, you can return a vehicle and not file bankruptcy, but if you return the vehicle to the lender, they will sell it, and if there is a shortfall remaining they will pursue you for the difference. So, if you can make suitable repayment arrangements with them you don’t need to file bankruptcy. If the shortfall on the vehicle, combined with your other debts, are more than you can service, then you should talk to a Licensed Insolvency Trustee about your options.

  1. Brad c.

    Dear folks.i had judgement against me bye the courts.i have question.im in sk .there lawyer tried to convince me to declare bankruptcy and than convinced me to sign over my truck and I did.but here’s the thing.i just talked to sheriff in charge and he told me there lawyer shouldn’t of done this because I was allowed to keep it because of the value. The sheriff said there lawyer shouldn’t of given you any advice because there representing bank. Is there anything I can do.brad

    1. J. Douglas Hoyes

      Hi Brad. If you have already signed over the truck, there’s probably not much you can do at this point, other than speaking to a different lawyer to see if there is anything you can do. If you have other debts, you could also speak to a Licensed Insolvency Trustee to determine your options.

  2. Zack

    What if someone just left the car without informing anyone and had to go to another country to settle there.
    What will happen to the car and the loan?

    1. Ted Michalos

      If the car is/was simply left someplace then eventually it will be impounded (towed to a secure storage location) and then they’ll try and sort out who is entitled to it. That usually means the loan company (if they pay the towing and storage fees). Any extra costs incurred will be added to the loan and the company will try and collect on the debt. They’ll sell the car at auction, deduct what they receive and come after the borrower for the rest. If you are out of the country then there’s not much they can do to you (unless you left something behind in Canada or have Canadian income).

  3. Sarah

    I lost my job and I fell back on car payments. I was 3 months behind on my payments.so, My car company sent a bailiff with a towing truck to tow my car to a car auction.
    Now when I contacted my car company. They said that either I pay for my late payments in full+ bailiff fees+daily storage fees+ auction fees. Provide them with proof of insurance, three references and proof of employment. Or they will sell it and post to my credit history and it will affect it for 7 years.
    Now I would like to just return the car because this year I have been in and out of jobs and it’s been more stressful than helpful to have a car! Should I pay for it and tell them I don’t want it anymore? Should I just leave it and not pay cuz I can’t afford what they are asking for anyways…? I don’t know what to do.
    What do you recommend me doing?

    1. Ted Michalos

      If you don’t want the car back then the real question is do you think you can sell it for more than it will get if sold at auction? Once the car is sold you will owe some amount of money to the lender (loan balance + selling fees + towing and auction fees – selling price). If you can sell it for more then it will reduce how much you still owe the lender. If you can’t then you may as well let them sell it, but be ready for the letter after the sale asking for the remaining balance. If you have additional/other debts yuo may want to speak to someone about a consumer proposal, or even bankruptcy, to clean things up.

  4. Willow

    In Alberta I am allowed a vehicle exemption up to $5000. If my car is only valued at $4000 and I sell it, during bankruptcy, for $4000, can I keep the money because it’s below the exemption amount or does it have to be used towards the purchase of another car? If I sell it and plan on using the money to buy another car but can’t find one for a few months, can I keep the money until I find a car?

    1. J. Douglas Hoyes

      Hi Willow. Yes, if your car is exempt, you may sell it and keep the money until you find a new car. However, to be sure, you should confirm this with your licensed insolvency trustee before you sell your car.

  5. Jen

    I need to file bankruptcy. I want to included my car that I’m financing. Do I have to voluntary surrender it first and get a statement of realization. Or do I file bankruptcy first and does the trustee take care of that?

    1. Ted Michalos

      Either way works – I suggest you find a trustee to work with and get them to help you decide on which is better for you.


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