Question: Hello, we have already had our first consultation and have decided to file for bankruptcy as of december 14th because we want to include my student debts (It will have been 7 years). We would like to reduce our car payment. Hence we would hand our present car in the bankruptcy. My question is the following. We want to purchase a less expenseive car now. Obviously, car dealers sustain that it is better to buy it before bankruptcy, even with no credit available, because our interest rate would be lower han borrowing with a bankruptcy rating. We are hesitating because we would not want it to be considered fraud. In this scenario, on december 14th we would have 2 cars and relinquish our most expensive one to the bank (the one we have had for more than a year). Is this legal? Would this be o.k?
Thanks for your time and attention!
Answer: Yes, what you describe is legal. Bankruptcy deals with your unsecured debts (like credit cards); secured debts are not discharged in a bankruptcy, unless you surrender the security. In your case you will be surrendering your first car when you go bankrupt, so it will no longer be a secured debt, and the resulting shortfall will be discharged in your bankruptcy.
Your “new” car will not be surrendered, and because it’s a secured loan you may continue making payments on it and keep the car after you file bankruptcy. If the new vehicle is necessary, and the payments are lower than the first vehicle, your strategy probably is a good one, although you should discuss it in detail with your Ontario bankruptcy trustee to ensure that there are no other factors that should be considered.
Tags: car