What Is Vehicle Repossession and How Will It Affect My Finances?

Nobody takes out a car loan planning to miss a payment. But life happens. A layoff, a separation, or a health problem can hit out of nowhere, and suddenly you’re behind and not sure how you’ll catch up. If the missed payments keep adding up, your vehicle could be at risk of repossession. Losing your ride is stressful enough, but there are other financial consequences too. The good news: if you act early, you usually have more options than you think.

When Is a Vehicle Repossessed?

If you lease or finance a car and can’t keep up with the payments, your vehicle is at risk of being repossessed. Once you fall far enough behind, the lender will usually contact you about the missed payments. If you can’t work something out or simply can’t pay, the lender can send a bailiff to take the vehicle back.

A lender repossesses a vehicle to recover some of what you owe. They will usually sell it for fair market value or send it to auction. The money from that sale goes toward the balance of your loan. If the sale doesn’t cover the full amount, you’re on the hook for the difference. That difference is called a deficiency.

What is a deficiency?

If your vehicle is repossessed and sold for less than you owe, you’re not off the hook. You’re still responsible for the deficiency. That can include the remaining loan balance, the costs of repossessing and selling the car, late fees, and interest.

How Does the Car Repossession Process Work in Canada?

Repossession laws can differ depending on where you live. In Alberta and British Columbia, for example, there’s a “seize or sue” rule. Under that rule, the creditor has to choose: they can either seize (repossess) the vehicle, or sue you for the amount you owe. They can’t do both. It’s up to the creditor which path they take.

Ontario works differently. Here, a creditor can seize the vehicle and sue you for the balance left on the loan.

Repossession rules can also depend on the type of agreement you signed. A secured car loan and certain kinds of leases can be treated differently. Because the rules vary by province and by the agreement itself, it’s worth getting advice specific to your situation before you assume what will happen.

Involuntary versus voluntary repossession

There are two types of repossession, and they’re the same across the country: involuntary and voluntary.

An involuntary repossession happens when you miss your payments and don’t work with the lender on a repayment plan. A voluntary repossession happens when you realize you cannot afford your car payments and you hand the vehicle back to the lender yourself. Choosing to surrender the vehicle can help you avoid some of the extra costs that come with an involuntary repossession.

Will a Repossession Affect Your Credit Score?

Whether the repossession is voluntary or involuntary, your credit will likely take a hit.

A repossession usually shows up on your credit report as a missed-payment or default record, and that kind of negative mark can stick around for years. In Ontario, negative account information like this generally stays on your credit report for about six years, though the exact timing can vary by credit bureau and by how the account is reported. You can check the current rules on the Government of Canada’s credit report page.

While that mark is on your report, it can make it harder to get another car loan, qualify for a mortgage, or get approved for other credit. And even if a lender does approve you, you may end up paying a higher interest rate.

How to Avoid Vehicle Repossession

If you want to keep your car or truck out of the repo lot, the best move is to speak with a Licensed Insolvency Trustee (LIT) as soon as you can about your debt options. There are also a few things you can try on your own.

Speak to your lender

Repossession is a last resort for the lender. They don’t want the hassle of seizing your car, selling it, and then chasing you for a deficiency. Nobody wants that. So as soon as you know a payment is going to be a problem, reach out to your lender. Ask about a new repayment arrangement or refinancing.

If there’s truly no way to catch up or keep making payments going forward, that’s the time to talk to an LIT about your options.

Sell your car

If you can’t afford the payments, you might consider selling the vehicle before repossession is on the table. Selling it yourself gives you a chance to recover as much as possible to put toward the loan.

Voluntary surrender

If you know you can’t make your payments and want to avoid an involuntary repossession, you can voluntarily surrender the vehicle. If you go this route, tell the lender as soon as possible. Keep in mind there are still consequences. Your credit will take a hit, and you can still be responsible for any deficiency.

Can You Avoid Repossession by Filing for Bankruptcy?

If you’re weighing your debt options, it’s important to know this: you can’t usually stop a repossession just by filing for bankruptcy or a Consumer Proposal. A car loan is a secured debt, which means it’s tied to the vehicle and won’t simply be wiped out.

When you file, the law puts a “stay of proceedings” in place that stops most creditors from chasing you. But that protection generally does not apply to secured creditors like your car lender. They can still act on the vehicle that backs the loan.

What bankruptcy can do is free up money by eliminating unsecured debts like credit cards and unsecured loans. With those gone, you may have more room in your budget to keep up with secured payments, including your car. Before you decide anything, talk to a Licensed Insolvency Trustee. An LIT can look at your full financial picture and walk you through the options. You can learn more about the formal process on the Government of Canada’s insolvency page.

What Happens After Vehicle Repossession?

Here’s where the two pieces connect. Before your car is repossessed, the loan is “secured” by the vehicle, so it can’t be included in bankruptcy or a Consumer Proposal. But once the car is gone and there’s still a balance owing, that leftover deficiency becomes “unsecured.” Unsecured debt is exactly the kind of debt that can be dealt with in an insolvency proceeding.

So if your vehicle has already been repossessed and you later file, that remaining car debt may be included.

Who Can Help Me?

The thought of losing your vehicle is stressful, and you don’t have to figure it out alone. If you’re behind on payments and worried about repossession, reach out to a Licensed Insolvency Trustee. We’ll listen, explain your options in plain language, and help you find a way forward. There’s no need to feel uneasy about sharing your story with us.

You can reach an LIT at Adamson and Associates and book a free, confidential consultation. Call John at 519-310-JOHN (5646) or contact us online.

Day or evening, we are open late to help you.