What happens to your car when you file for bankruptcy?
When you file for bankruptcy in Canada, your assets pass to a Licensed Insolvency Trustee, who sells them and distributes the proceeds to your unsecured creditors.
But not everything passes to the trustee. Some of your property is protected, including one motor vehicle in every province.
Each province sets its own dollar limit on how much equity you can protect in one car.
How much vehicle equity can you keep in Ontario?
Ontario protects up to $8,578 of equity in one motor vehicle. The figure is set by Ontario Regulation 657/05 under the Execution Act, last revised by Ontario Regulation 393/25 in 2025.
Equity is the vehicle’s fair market resale value minus any outstanding loan or lease balance secured against it.
If your equity number lands below $8,578, the trustee has no claim on the car. A 2019 Honda Civic worth $11,000 with $7,000 still owed on the loan has $4,000 of equity, which sits well under the Ontario limit.
When the loan balance is higher than the car’s value, the equity is zero. When this happens, the exemption amount doesn’t matter, because there’s nothing for the trustee to seize.
What if your car is worth more than the exemption limit?
If your car’s equity is above the provincial limit, you have three options. Pay an amount above the limit into the bankruptcy estate, hand over the car to the trustee to sell, or file a consumer proposal instead.
The math is simple. A $12,000 car with no loan against it has $12,000 of equity in Ontario. Subtract the $8,578 exemption, and $3,422 is left over, which you pay into the estate to keep the car.
Source: Government of Ontario – Execution Act, R.R.O. 1990, Reg. 657/05, s. 1(1)
Most people make that payment over the duration of the bankruptcy rather than as a lump sum.
If you can’t manage the buyout, a consumer proposal is an alternative. It’s a debt agreement that lets you keep all your assets and repay part of your unsecured debt over a period of time of up to five years. In this scenario, you keep the car.
What happens to a financed or leased car in bankruptcy?
When a car is financed or leased, the lender has a claim on the car itself until it’s paid off. That claim doesn’t go away when you file for bankruptcy. Filing stops your other creditors from chasing you, but it doesn’t stop the car lender.
A lender that’s owed money on the car can still go after it during your bankruptcy, the same as it could if you’d never filed. The lender’s deal is with you, not with the trustee.
Source: Department of Justice Canada – Bankruptcy and Insolvency Act, s. 69.3(2)
If you continue to pay the lease or finance agreement, you keep the car. If you stop paying, the lender repossesses it.
Do vehicle exemption limits differ by province?
Every province sets its own vehicle exemption. As of 2026, the amounts vary a lot, from $5,000 in Alberta and British Columbia to $10,000 in Saskatchewan. The amount depends on where you live.
| Province | Vehicle exemption |
|---|---|
| Ontario | $8,578 |
| Alberta | $5,000 |
| Saskatchewan | $10,000 |
| British Columbia | $5,000 |
Source: Moses Advisory Group – Bankruptcy Exemptions by Province in Canada
Saskatchewan has the highest motor vehicle exemption in the country at $10,000, set out in the Enforcement of Money Judgments Regulations.
Source: Government of Saskatchewan – Enforcement of Money Judgments Regulations, E-9.22 Reg 1
In British Columbia, the exemption is $5,000 for debtors whose debt is not from family maintenance arrears, set out in the Court Order Enforcement Exemption Regulation.
If your province isn’t listed here, check your province’s exemption rules or ask a Licensed Insolvency Trustee.
Will you have to give up a second car?
The exemption only covers one vehicle. A second car isn’t protected, so its full value goes to the bankruptcy estate.
In a two-car household where both are owned outright, you pick which one to keep. The trustee sells the other, or you pay its value into the estate. If both spouses file together, each keeps one.
A consumer proposal avoids this. You keep both cars, and their value gets factored into what you offer your creditors.
Frequently asked questions
Can the trustee take my car if I claim bankruptcy in Canada?
Not usually. Each province sets a vehicle exemption, and most used cars fall below the limit. The trustee only acts when your car’s equity runs above the exemption, and even then, you’ve got options to keep it.
Will I lose my car if I file for bankruptcy?
No, most people don’t. Each province sets a vehicle exemption, and if your car’s equity falls below that limit, the trustee has no claim on it. You only risk losing it if the equity runs above the limit and you can’t pay the difference. If this happens, consider a consumer proposal instead.
How is the equity in my car calculated for bankruptcy?
Equity is the car’s resale value minus any loan or lease balance still owing on it. The trustee uses wholesale guides like the Canadian Black Book or Red Book, not the retail price on a dealer’s lot. If that figure is below your province’s exemption, the trustee has no claim on the car.
What is the vehicle exemption in Ontario for 2026?
Ontario’s motor vehicle exemption is $8,578, set by Ontario Regulation 657/05 under the Execution Act. The figure was last revised by Ontario Regulation 393/25 in 2025. It applies to one motor vehicle per debtor.
Can I keep my financed car if I claim bankruptcy?
Yes, as long as you keep up with the monthly payments. A financed car is tied to the lender’s loan, and bankruptcy doesn’t wipe out what you owe on it. The lender’s only question is whether you’re current on payments, not whether you’ve filed.
What happens to a leased vehicle when I claim bankruptcy?
A lease works the same way as a loan for bankruptcy purposes. The leasing company still owns the car, and the lease continues if you keep paying. If you stop paying, the leasing company takes the vehicle back under the terms of your lease.
Is a consumer proposal a better option for keeping my car?
It depends on what you own and what you owe. A consumer proposal lets you keep all your assets, including any car equity above the bankruptcy exemption. If your car is worth a lot more than the provincial limit and you can afford to repay part of your debt over a maximum of five years, a consumer proposal is often the more sensible route.
Can I buy a new car while I’m an undischarged bankrupt?
You can, but you have to disclose your bankruptcy. Section 199 of the BIA makes it a summary offence for an undischarged bankrupt to obtain credit of $1,000 or more without telling the lender. Most car loans cross that threshold easily, so the lender needs to know. Whether they approve the loan is up to them.
Source: Department of Justice Canada – Bankruptcy and Insolvency Act, s. 199
Talk to a Licensed Insolvency Trustee about your car
Before you decide anything about your car or filing for bankruptcy, find out where you stand. A Licensed Insolvency Trustee can tell you what your vehicle’s worth is, how it compares to your province’s exemption, and whether bankruptcy or a consumer proposal fits better. The consultation is free.
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