Can You Keep Your Car in Bankruptcy Canada? Vehicle Equity Rules

You keep your car in bankruptcy if vehicle equity—fair market value minus loan balance—is below your provincial exemption: Ontario $7,117, BC $5,000, Alberta $5,000, with most provinces protecting $5,000 to $7,000. Financed vehicles are kept if you’re current on loan payments AND equity is below the exemption; owned vehicles are kept if equity is below the exemption or you pay the difference to the trustee.

Vehicle exemptions exist to ensure bankrupts maintain transportation necessary for employment and daily life. Provincial legislation sets specific dollar amounts protecting vehicle equity from seizure. Understanding your province’s exemption and accurately calculating your vehicle equity determines whether you can keep your car through bankruptcy. For the full process and costs, see bankruptcy in Canada and how much bankruptcy costs.

How is vehicle equity calculated in bankruptcy?

Vehicle equity equals the fair market value of your vehicle minus any outstanding loan balance. Fair market value is the price you could reasonably sell the vehicle for in current market conditions—not the replacement value or what you paid originally.

Canadian Black Book and AutoTrader are standard resources for estimating fair market value. These services provide values based on year, make, model, mileage, condition, and local market data. Trustees typically use the “clean trade-in” value or “private party sale” value as fair market estimates—not retail prices dealers charge.

Vehicle condition significantly affects value. The same vehicle in excellent condition versus poor condition may have a $3,000 to $5,000 value difference. Be honest about condition when estimating value—trustees may conduct independent appraisals if they suspect undervaluation. Condition categories include excellent (no damage, well-maintained), good (minor wear, well-maintained), fair (moderate wear, functions properly), and poor (significant damage or mechanical issues).

Calculate equity using this formula: Fair Market Value minus Outstanding Loan Balance equals Net Equity. For example, a 2018 Honda Civic worth $15,000 with a $10,000 car loan has $5,000 equity. If Ontario’s exemption is $7,117, the vehicle is fully protected because equity is below the exemption.

Negative equity means you keep the vehicle automatically. If your vehicle is worth $12,000 but you owe $15,000 on the loan, you have negative $3,000 equity. The trustee has no interest in seizing the vehicle because selling it generates no funds after paying the lender. You can keep the vehicle by continuing loan payments or surrender it to discharge the $3,000 shortfall as unsecured debt.

Outstanding loan balance includes the full amount owed at the time of filing bankruptcy. If you are making payments, use the payoff amount shown on recent statements, not the original loan amount. Some lenders charge early payoff penalties—these are included in the balance for equity calculations.

Multiple loans or liens on one vehicle complicate calculations. If you have a car loan plus a second loan secured by the vehicle, both amounts reduce equity. For example, a $20,000 vehicle with a $12,000 car loan and $5,000 second lien has $3,000 equity after deducting both loans.

Recent purchases at inflated prices may leave you with unexpectedly high equity. If you paid $25,000 for a vehicle six months ago but current market value is $22,000, your equity is based on current $22,000 value, not what you paid. Market depreciation benefits you in equity calculations.

Trustee appraisals occur when values are disputed or vehicles are unusual. Classic cars, high-performance vehicles, modified vehicles, or commercial vehicles may require professional appraisal. Appraisal costs are paid from bankruptcy receipts. If appraisal reveals significantly higher value than you estimated, you may owe additional equity buyout payments.

What are vehicle equity exemptions by province?

Provincial legislation sets vehicle exemption amounts varying from $3,000 to over $7,000 depending on location. These exemptions represent the equity you can keep without paying the trustee. Equity above exemptions must be paid to keep the vehicle or the vehicle is seized and sold.

Ontario offers the highest vehicle exemption at $7,117 for 2026. This amount is indexed annually based on the Consumer Price Index. The exemption covers one motor vehicle used primarily for transportation. Commercial vehicles may have different exemption treatment depending on whether they are tools of trade.

Nova Scotia provides higher exemptions when vehicles are required for employment. If you need your vehicle to get to work and can demonstrate this necessity, the exemption is $6,500. If the vehicle is not required for employment—for example, you work from home or use public transit—the exemption drops to $3,000. Proving employment necessity requires employer letters or work location documentation.

British Columbia exemptions decrease dramatically if you are behind on child support payments. The standard $5,000 exemption applies when child support is current. If you owe child support arrears, the exemption drops to $2,000. This provision encourages bankruptcy filers to prioritize family support obligations.

Alberta’s $5,000 exemption is fixed and not indexed to inflation. The same $5,000 amount has applied for many years. In high vehicle price environments, this exemption protects less than it did historically. Alberta also protects farm vehicles and equipment used in farming operations under separate agricultural exemptions.

Multiple provinces cluster around $5,000 exemptions. BC, Alberta, Saskatchewan, New Brunswick, and PEI all protect approximately $5,000 in vehicle equity. This consistency reflects similar policy goals of ensuring basic transportation while not providing excessive asset protection that undermines creditor recovery.

Only one vehicle per working adult is typically protected. If you are single and own two vehicles, only one is exempt—usually the vehicle you designate as primary transportation. The trustee may seize the second vehicle if it has equity. Married couples can typically protect two vehicles if both spouses work—one exemption per working adult.

Recreational vehicles, boats, motorcycles, and ATVs are treated separately from primary vehicles. These are not typically considered necessary transportation and may not qualify for vehicle exemptions. If you own a motorcycle with $8,000 equity plus a car with $4,000 equity, the trustee may allow the vehicle exemption for the car but seize the motorcycle.

Commercial vehicles and trucks may qualify as tools of trade rather than vehicles. If you use a truck for self-employment—construction, landscaping, delivery—it may be protected under tools of trade exemptions rather than vehicle exemptions. Tools of trade exemptions are typically $5,000 to $10,000 depending on province and may protect higher-value work vehicles.

Leased vehicles have no exemption calculation because you have no equity. Lease payments are contractual obligations you can continue or reject in bankruptcy. Most people continue leases for necessary transportation. The exemption only matters for owned or financed vehicles where equity exists.

Can you keep a financed vehicle in bankruptcy?

Financed vehicles can be kept if you meet two requirements: remain current on loan payments throughout bankruptcy and have equity below your provincial exemption. Both conditions must be met—meeting only one is insufficient.

Car loans are secured debts giving the lender security interest in the vehicle. Bankruptcy does not eliminate secured debts if you keep the collateral. If you want to keep your financed vehicle, you must continue making loan payments exactly as scheduled. Missing even one payment during bankruptcy allows the lender to repossess.

Current on payments means no arrears at the time of filing and all payments made on time during bankruptcy. If you are behind on car payments when you file bankruptcy, you must catch up on arrears immediately or the lender can repossess despite bankruptcy. The stay of proceedings does not stop secured creditors from enforcing their security when you are in default.

Equity below the exemption is the second requirement. Calculate equity as described earlier: vehicle value minus loan balance. If you have a $20,000 vehicle with a $17,000 loan, your equity is $3,000. In Ontario with a $7,117 exemption, this vehicle is fully protected. If equity were $10,000, you would need to pay $2,883 to the trustee ($10,000 minus $7,117 exemption).

High-equity financed vehicles require equity buyout payments. If you have a $25,000 vehicle with a $15,000 loan in Ontario, your equity is $10,000. You must pay $2,883 to the trustee to keep the vehicle. This payment is in addition to continuing regular car loan payments. Most people arrange equity buyout payments as installments during the bankruptcy period.

Refinancing during bankruptcy to extract equity for the trustee is difficult but possible. Some lenders—typically B-lenders or private lenders—will refinance car loans during bankruptcy at higher interest rates. You refinance to increase the loan amount, extracting equity to pay the trustee. Your monthly car payment increases but you keep the vehicle.

Surrendering financed vehicles during bankruptcy is an option if you cannot afford payments or equity buyouts. Voluntary surrender discharges any deficiency—the difference between what the lender recovers from selling the vehicle and what you owed. If you owe $15,000 and the lender sells the car for $12,000, the $3,000 deficiency is included in bankruptcy as unsecured debt and discharged.

Bankruptcy does not change your loan terms, interest rate, or payment amount. Your car loan contract continues exactly as written. The lender cannot demand early repayment or increase interest rates simply because you filed bankruptcy. Make payments on the original schedule to the same lender under the same terms.

Lenders cannot refuse payments during bankruptcy. Some lenders prefer bankrupts surrender vehicles to avoid administrative burden. However, if you want to keep the vehicle and are current on payments with equity below exemption, the lender must accept payments. Bankruptcy trustees can assist if lenders attempt to refuse payments or force surrender.

Post-bankruptcy loan renewals or extensions are problematic. If your car loan term ends while you are bankrupt, the lender may decline renewal. Most car loans are closed-end contracts that simply end when paid off, avoiding this issue. Open-end or revolving vehicle loans may face renewal problems similar to mortgage renewals during bankruptcy.

Trading vehicles before bankruptcy to reduce equity is common but must be done carefully. If you have a $25,000 vehicle with $15,000 loan ($10,000 equity), trading for a less expensive vehicle before filing reduces equity that must be paid to the trustee. However, trading within 12 months before bankruptcy may be scrutinized as preferential transfer if done specifically to avoid creditors.

Can you keep an owned vehicle (no loan) in bankruptcy?

Owned vehicles with no loans are evaluated purely on equity—the full market value of the vehicle. If the value is below your provincial exemption, you keep the vehicle. If value exceeds the exemption, you must pay the difference to the trustee or surrender the vehicle for sale.

Calculate total vehicle value without loan deductions. A vehicle worth $8,000 with no loan has $8,000 equity. In Ontario with $7,117 exemption, you would owe $883 to the trustee. In Alberta with $5,000 exemption, you would owe $3,000. The same vehicle has different implications depending on your province.

Low-value vehicles are fully protected in most provinces. If your vehicle is worth $4,000 and you live in any province with exemptions over $4,000, the vehicle is completely safe. Most older vehicles with higher mileage fall below exemption thresholds automatically due to depreciation.

High-value owned vehicles create significant costs. A vehicle worth $20,000 outright in Ontario requires paying $12,883 to keep it ($20,000 minus $7,117 exemption). Few bankrupts can afford this, forcing vehicle surrender or consumer proposal filing instead. Classic cars, luxury vehicles, and newer vehicles with low mileage often have values exceeding exemptions.

Paying the trustee to keep high-value vehicles requires lump sum or installment arrangements. If you must pay $12,000 to keep a vehicle, you can arrange $571 monthly payments over 21 months alongside surplus income payments. Some trustees require lump sum payment within 90 days to avoid extended bankruptcy administration.

Borrowing from family to pay non-exempt equity is common. Parents or siblings may loan you the buyout amount to keep a reliable vehicle. These are genuine loans—not gifts that would become assets—with repayment agreements. Document loans properly to avoid trustees challenging them as undisclosed assets.

Surrendering owned vehicles and using exemption toward replacement is strategic in some cases. If you own a $15,000 vehicle and must pay $7,883 to keep it (Ontario), surrendering the vehicle and buying a $6,000 replacement after discharge saves $7,883. The trustee sells the $15,000 vehicle, pays you the $7,117 exemption, and distributes the rest to creditors. You use the $7,117 plus perhaps $1,000 in savings to buy the $6,000 replacement, netting $2,117 cash versus paying $7,883.

Vehicle condition disputes occur when trustees believe vehicles are worth more than you estimated. If you claim your vehicle is worth $5,000 due to mechanical problems but the trustee believes fair market value is $8,000, the trustee may get an independent appraisal. If appraisal confirms $8,000 value, you must pay the non-exempt equity based on appraisal.

Modified vehicles and custom work may add value above standard market estimates. If you installed a $5,000 custom lift kit, sound system, or engine modifications, trustees may claim higher value. Conversely, modifications sometimes decrease value if they make vehicles less marketable to general buyers.

Selling vehicles before bankruptcy to reduce assets is legal but must be disclosed. If you sell a $15,000 vehicle two months before bankruptcy, you must disclose the sale and what happened to the proceeds. Using proceeds to pay exempt debts like secured creditors is acceptable. Using proceeds to pay unsecured creditors or hiding the cash is preferential treatment or fraud.

Replacing expensive vehicles with cheaper ones before bankruptcy is a common strategy. Trading a $20,000 vehicle for a $6,000 vehicle before filing bankruptcy protects transportation while reducing non-exempt equity from $12,883 to zero (Ontario). Trustees scrutinize vehicle trades within 3 to 6 months before bankruptcy to ensure fair value was received and trades were not fraudulent.

What happens to leased vehicles in bankruptcy?

Leased vehicles have no equity because you do not own the vehicle—you are renting it under a long-term contract. Without equity, there is nothing for the bankruptcy trustee to seize. The only decision is whether to continue or terminate the lease contract.

Reaffirm lease contracts to continue using leased vehicles. Reaffirmation means you agree to continue the lease under its original terms and continue making lease payments throughout bankruptcy and after discharge. Most people reaffirm leases for necessary transportation. Reaffirmation is voluntary—you can choose to reject the lease instead.

Continuing lease payments requires staying current throughout bankruptcy. If you fall behind on lease payments, the lessor can repossess the vehicle despite bankruptcy. Make lease payments on time every month just as you did before filing. Bankruptcy does not change lease terms, payment amounts, or due dates.

Lease rejection allows you to return the vehicle and discharge any early termination penalties. If your lease has 18 months remaining with $500 monthly payments and you cannot afford them, bankruptcy lets you reject the lease and return the vehicle. Early termination penalties—often thousands of dollars—are unsecured debts discharged in bankruptcy.

Excess wear and mileage charges are dischargeable if you reject the lease. If you return a leased vehicle with $4,000 in excess mileage charges and $2,000 in damage charges, these are unsecured debts included in bankruptcy. The lessor becomes an unsecured creditor for these amounts and receives cents per dollar like other creditors.

Most people continue leases rather than reject them. If your lease payment is affordable and you need the vehicle, continuing makes sense. You get to keep reliable transportation and avoid finding replacement transportation post-discharge. If lease payments are unaffordable or the vehicle is unnecessary, rejection saves hundreds of dollars monthly.

Lease-end timing affects bankruptcy decisions. If your lease ends in 3 months and you plan to file bankruptcy, waiting until after lease-end avoids dealing with lease rejection during bankruptcy. If your lease has 2 years remaining, filing bankruptcy now lets you reject the lease and discharge penalties immediately.

Purchasing leased vehicles at lease-end is possible during bankruptcy but requires trustee approval. If your lease-end purchase option is $12,000 and the vehicle’s market value is $15,000, you would have $3,000 equity. If this is within your provincial exemption, the trustee typically approves the purchase. If equity exceeds exemption, you must pay the difference to the trustee.

Gap insurance on leases may complicate bankruptcy. If you had an accident and totaled a leased vehicle, gap insurance covers the difference between insurance payout and lease balance. If the accident occurred before bankruptcy and you received gap insurance proceeds, those proceeds are assets the trustee may claim.

Business vehicle leases are treated the same as personal leases. If you lease a vehicle for self-employment, you can continue or reject the lease during bankruptcy. Business lease rejection discharges early termination penalties the same way personal lease rejection does.

Can you keep multiple vehicles in bankruptcy?

Provincial exemptions typically protect one vehicle per working adult in the household. Single persons get one vehicle exemption. Married couples with both spouses working get two vehicle exemptions—one per person. Married couples with only one working spouse typically get one vehicle exemption.

Calculate combined equity for multiple vehicles. If you own two vehicles worth $6,000 and $4,000 in Ontario, total equity is $10,000. Your single exemption is $7,117, meaning you must pay $2,883 to keep both vehicles or surrender one. Some trustees allow you to allocate exemption across vehicles—$7,117 to the higher-value vehicle, making it exempt, and seize the $4,000 vehicle.

Trustee discretion determines whether two vehicles are necessary. If you work 100 kilometers from home with no public transit and your spouse works in the opposite direction, two vehicles may be considered necessary. If both spouses work downtown with excellent transit, the trustee may question whether two vehicles are truly necessary.

Families with teenage drivers usually cannot protect three vehicles. Parents may argue their employed 18-year-old child needs a vehicle, but exemptions are typically one per working adult—not one per driver. The teenage driver’s vehicle equity exceeding household exemptions is at risk unless the vehicle is registered and owned by the teenager and they file their own bankruptcy.

Recreational vehicles do not count toward vehicle exemptions. If you own a primary vehicle worth $5,000 plus an ATV worth $8,000, the ATV is not protected under vehicle exemptions. Provincial exemptions typically specify vehicles “used primarily for transportation” or “motor vehicles necessary for employment.” ATVs, boats, jet skis, snowmobiles, and motorcycles used recreationally are seized if they have equity.

Work trucks and commercial vehicles may qualify as tools of trade. If you are a contractor using a $30,000 pickup truck for business, this may be protected as a tool of trade rather than consuming your vehicle exemption. Tools of trade exemptions are separate—typically $5,000 to $10,000 depending on province. Protecting a $30,000 work truck requires demonstrating it is essential for employment and allocating both vehicle and tools exemptions.

Multiple financed vehicles with little equity are usually kept easily. If you have two financed vehicles with $2,000 equity each in Ontario, total equity of $4,000 is well below the $7,117 single exemption. The trustee may allow both vehicles if combined equity is within exemption and you can afford both loan payments during bankruptcy.

Surrendering one vehicle to protect another is a common strategy. If you have vehicles worth $6,000 and $8,000 in Alberta with a $5,000 exemption, you might surrender the $6,000 vehicle and keep the $8,000 vehicle by paying $3,000 to the trustee. This concentrates exemption on one better vehicle rather than spreading it thin across two.

Adult children living at home complicate multi-vehicle households. If you and your spouse each have a vehicle plus your 22-year-old employed child has a vehicle, all registered in your name, the child’s vehicle may be at risk. Transferring vehicle ownership to the adult child before bankruptcy protects it from your bankruptcy but must be done with proper consideration and documentation to avoid fraudulent transfer claims.

Classic cars and collector vehicles are scrutinized carefully. If you own a 1967 Mustang appraised at $40,000 plus a daily driver worth $8,000, the trustee treats these as separate assets. The classic car is not necessary transportation—it is an investment asset. The full $40,000 value is at risk after applying one vehicle exemption to the $8,000 daily driver.

How does a consumer proposal protect vehicle equity?

Consumer proposals protect 100% of vehicle equity regardless of amount. Provincial exemptions do not apply to proposals—you keep all vehicles with any amount of equity as long as you maintain any loan payments. This unlimited protection makes proposals strongly preferred over bankruptcy for people with high vehicle equity.

Compare bankruptcy versus proposal costs for vehicle owners. If you have a vehicle with $15,000 equity in Ontario, bankruptcy requires paying $7,883 to the trustee plus bankruptcy costs including surplus income. If you owe $60,000 total debt, a consumer proposal settling at 30% costs $18,000 plus fees over 5 years. The proposal protects the full $15,000 equity with no additional payment—often costing less than bankruptcy despite longer timeline.

Fixed proposal payments never increase when you acquire vehicles. If you negotiate a $400 monthly proposal and later buy a second vehicle, your payment stays $400. In bankruptcy, acquiring significant assets during the process may require additional payments to the trustee or extend discharge timeline.

Multiple vehicles are protected without question. If you own three vehicles worth $8,000, $12,000, and $6,000 (total equity $26,000), consumer proposals protect all three. Bankruptcy would protect only one vehicle exemption—typically $5,000 to $7,000—forcing you to surrender or pay $19,000 to $21,000 for the other vehicles.

Recreational vehicles and toys are protected in proposals. Your motorcycle with $10,000 equity, boat with $8,000 equity, and daily driver with $6,000 equity all remain yours in a consumer proposal. Bankruptcy would seize recreational vehicles after applying one exemption to the daily driver.

Classic cars and collector vehicles are fully protected. If you own a restored classic worth $50,000, consumer proposals protect this vehicle while eliminating 60% to 80% of unsecured debt. Bankruptcy would seize the classic car, pay you your provincial exemption (perhaps $7,000), and distribute $43,000 to creditors—losing the vehicle permanently.

Work trucks and commercial vehicles are protected without tools of trade complications. If you own a $35,000 pickup truck for your construction business, consumer proposals protect it fully. Bankruptcy requires demonstrating the truck is a tool of trade, allocating combined exemptions, and likely still paying $20,000 to $25,000 to keep it.

Proposal creditor acceptance rates exceed 99% according to industry data. Creditors accept proposals when the offer exceeds bankruptcy recovery. If bankruptcy would seize your $15,000 vehicle, creditors recover perhaps $13,000 after trustee fees. A proposal offering 30% of $50,000 debt pays creditors $15,000—equal or better recovery while letting you keep the vehicle.

Calculate your consumer proposal payment to compare costs. Input your total debt, income, and vehicle equity to see whether proposals cost less than bankruptcy plus vehicle equity buyouts. For most vehicle owners with equity exceeding $10,000, proposals save money and protect assets.

Bottom Line

You keep your vehicle in bankruptcy if equity—fair market value minus loan balance—is below your provincial exemption: Ontario protects $7,117, British Columbia and Alberta $5,000, Nova Scotia $6,500 if needed for work, with most provinces protecting $5,000 to $7,000. Financed vehicles require staying current on all loan payments throughout bankruptcy plus having equity below the exemption—missing even one payment allows repossession despite bankruptcy protection. Owned vehicles with value exceeding exemptions require paying the difference to the trustee or surrendering the vehicle for sale, while leased vehicles can be continued or rejected with early termination penalties discharged as unsecured debt. Provincial exemptions protect only one vehicle per working adult, meaning second vehicles, recreational vehicles like ATVs and boats, and motorcycles are typically seized if they have equity above household exemption limits. Consumer proposals protect 100% of vehicle equity regardless of amount, making proposals almost always more affordable than bankruptcy for Canadians with owned vehicles worth $12,000 or more, multiple vehicles, or recreational vehicles—proposals eliminate 60% to 80% of debt with fixed payments while protecting unlimited vehicle equity. If your vehicle equity exceeds your provincial exemption by more than $5,000, calculate your consumer proposal cost to compare bankruptcy vehicle buyout payments versus proposal fixed monthly payments for your total debt.

Disclaimer: This article provides general information about vehicle protection in Canadian bankruptcy. Rules vary by province. Consult with a Licensed Insolvency Trustee for advice specific to your situation.

Last updated: February 2, 2026