Can You Keep Your Car in a Consumer Proposal?

How a consumer proposal protects your car

A consumer proposal is a legal agreement under the Bankruptcy and Insolvency Act (BIA). You repay part of your unsecured debt over up to five years, and your creditors forgive the rest. A Licensed Insolvency Trustee (LIT) administers the process, which is supervised by the Office of the Superintendent of Bankruptcy.

The key term is “unsecured.” A consumer proposal only deals with unsecured debts like credit cards, personal loans, lines of credit, and tax debt.

Your car loan or lease is a secured debt, meaning the lender holds a lien on the vehicle as collateral. Because it’s secured, it sits outside the consumer proposal entirely.

What the law says

Bankruptcy and Insolvency Act legislation prevents any person from terminating or changing the terms of an agreement with you solely because you filed a consumer proposal.

Your lender can’t increase your interest rate, call the loan, or repossess the car just because you filed. As long as the payments continue, the car stays with you.

Source: Government of Canada – Bankruptcy and Insolvency Act, s. 66.34

Owned, financed and leased cars

How your car is treated depends on whether you own it outright, have a loan or are leasing.

If you own your car outright

You keep it. No payments to make, no lender to worry about.

Your trustee will note the vehicle’s make, model, year and current resale value when preparing the consumer proposal. The car’s value gets factored into the offer to creditors.

Here’s why that matters. A consumer proposal has to offer creditors more than they’d receive if you went bankrupt instead. In bankruptcy, provincial exemptions set the limit on what you keep.

As of 2026, you can keep one vehicle worth up to $8,578 in Ontario under the Execution Act. Anything above that amount would go to creditors in a bankruptcy.

Source: Ontario Regulation 657/05, as amended by O. Reg. 393/25 – Exemptions

In a consumer proposal, you keep the car regardless of its value, but your trustee accounts for the full value in calculating the offer. So a car worth $20,000 means a higher offer to creditors than a car worth $5,000.

If you have a car loan

You keep making the payments. That’s it. The lender wants their money, not your car.

Give your trustee a copy of your finance agreement and the monthly payment amount so they can include it in your consumer proposal budget.

Miss payments, and the lender can repossess the vehicle. The consumer proposal doesn’t change that right. A consumer proposal filing can protect your car, but it can’t protect you if you start missing the car payments.

If you’re leasing

Same principle. Continue your lease payments, and you keep the vehicle. Your trustee needs the lease terms and the monthly payment amount to include in the proposal paperwork.

A lease is a secured arrangement. The leasing company owns the car, and you’re paying for the right to use it. Fall behind on lease payments, and the leasing company can take the vehicle back, consumer proposal or not.

What happens if you surrender the car

If the car payments are more than you can afford, you don’t have to keep the vehicle. Your trustee can arrange for the car to be returned to the lender before filing the consumer proposal.

Here’s an example. Say you owe $18,000 on a car loan, but the car is only worth $12,000 at resale. You return the car to the lender, and the lender sells it for $12,000.

That leaves a $6,000 shortfall. The shortfall becomes unsecured debt and gets rolled into the consumer proposal along with your credit cards, personal loans and other unsecured balances.

This is worth considering if the car is costing you more than it should. A $600 per month car payment on top of insurance and fuel can be the difference between comfortably making your consumer proposal payments and struggling every month.

Sometimes letting the car go is the smarter move.

Consumer proposal vs. bankruptcy: your car

The biggest difference between a consumer proposal and bankruptcy is what happens when you own a car outright. In bankruptcy, provincial exemptions limit what you keep. In a consumer proposal, your assets are protected.

	Consumer proposal	Bankruptcy
Owned car (any value)	Keep it. Value factored into creditor offer.	Keep it only if equity is within provincial exemption limit. As of 2026, Ontario’s limit is $8,578. Pay the difference or surrender it.
Financed car	Keep it. Continue loan payments.	Keep it. Continue loan payments. Lender’s secured claim is unaffected.
Leased car	Keep it. Continue lease payments.	Keep it. Continue lease payments.
Car you can’t afford	Surrender it. Shortfall becomes unsecured debt in the proposal.	Surrender it. Shortfall becomes an unsecured claim in the bankruptcy.
Legal protection	BIA s. 66.34 prevents lender from changing terms because of filing.	BIA s. 84.2 provides similar protection. Lender can’t terminate or change terms solely because of bankruptcy.

Source: Ontario Regulation 657/05, as amended by O. Reg. 393/25 – Exemptions

In bankruptcy, a car worth $15,000 in Ontario means you’d pay $6,422 to your trustee to keep it ($15,000 minus the $8,578 exemption). In a consumer proposal, you keep the car, and the value is factored into the overall offer, often at a lower total cost.

Can you buy a car during a consumer proposal?

You can get a car loan during a consumer proposal. It’s harder, but not impossible.

The lender will contact your Licensed Insolvency Trustee to confirm you’re making your proposal payments on time. A clean payment history on the proposal works in your favour.

Be realistic about what you can afford. Interest rates on subprime auto loans are higher, sometimes much higher. Make sure the payment fits comfortably within the budget your trustee set up when the consumer proposal was filed. Taking on a car payment you can’t handle defeats the purpose of filing in the first place.

Frequently asked questions

Can I keep two cars in a consumer proposal?

Yes. A consumer proposal doesn’t limit the number of vehicles you own. Both cars stay with you, but their combined value gets factored into the creditor offer.

Does a consumer proposal affect my car insurance?

No. Insurers in Canada don’t routinely check insolvency filings when setting premiums. Your driving record, claims history, and vehicle type matter far more.

What if I owe more than my car is worth?

If you’re keeping the car, you continue making payments regardless. In a consumer proposal, the car’s market value is what matters for the creditor offer, not the loan balance. If you’re surrendering it, the difference between the loan balance and the resale value becomes unsecured debt included in the proposal.

Can my lender repossess my car after I file a consumer proposal?

Not because of the filing. Section 66.34 of the BIA prevents that.

Source: Government of Canada – Bankruptcy and Insolvency Act, s. 66.34

If you miss your car loan payments, the lender can repossess the vehicle, even if a consumer proposal is in place.

What happens to my car lease if my consumer proposal is annulled?

If your consumer proposal is annulled (typically because you’ve defaulted on payments equal to three months’ worth), the protection ends.

Your lease itself isn’t automatically terminated, but your unsecured creditors are no longer bound by the terms of the proposal and can resume collection activity.

How does my car’s value affect the consumer proposal offer?

Your trustee calculates the consumer proposal offer based on what creditors would receive in bankruptcy. If you own a car worth more than the provincial bankruptcy exemption, that difference gets built into the offer.

The consumer proposal has to give creditors more than they’d get in a bankruptcy, and your car’s equity is part of that math.

Do I need to tell my car dealer about my consumer proposal?

Only if you’re applying for financing. If you’re buying with cash or keeping an existing vehicle, there’s nothing to disclose. Apply for a car loan, and the dealer or lender will pull your credit report, which shows the consumer proposal.

Can I refinance my car loan while in a consumer proposal?

It’s possible, though lenders are cautious. You’d need to find a lender willing to approve a refinance with an active consumer proposal on your credit report. Your trustee doesn’t need to approve the refinance, but the new payment has to fit within your budget.

Talk to a Licensed Insolvency Trustee

If you’re worried about your car and you’re dealing with debt you can’t pay back, talk to a Licensed Insolvency Trustee. The initial consultation is free, and it takes about 30 minutes to find out where you stand.