How a car loan is treated in a consumer proposal will depend on decisions you make about the impact your car loan or lease has on your finances. I will explain what happens whether you want to keep your car or walk away from a costly loan or lease.

The key takeaway is that you can keep your car in a consumer proposal unless you choose not to.

What debts can be included in a consumer proposal?

First, let’s quickly review which debts can be included in a consumer proposal:

• Unsecured personal loans
• Credit cards
• Lines of credit
• Payday loans and other high-interest rapid loans
• Students loans (if you have been out of school for 7 or more years)
• Income tax debts

For the most part, a consumer proposal allows you to eliminate all unsecured debts. Your total debts also cannot exceed $250,000 (excluding mortgage on principal residence).

What happens to a car loan in a consumer proposal?

Debts that cannot be included in a consumer proposal include debts secured by an asset like your car or home. What this means is that you can keep your vehicle, but you must also keep up with your monthly payments. Your secured lender retains all their rights under the loan agreement or lease to repossess your vehicle if you miss payments.

Since a car loan or lease is considered a secured debt, it cannot be included in a consumer proposal. You may consider this good news if you wish to keep your car. If you make your car loan payments on time, a consumer proposal filing will have no effect on your vehicle.

What if you cannot afford your monthly car loan payments?

If your car loan is causing you financial hardship and you are becoming delinquent on loan payments, you may consider handing back your vehicle. Speak to your lender about returning your car and doing a voluntary repossession.

If you find you owe more on your car than you have in equity, you are not alone. About 19% of insolvent Canadians with a vehicle had negative equity in their cars in 2022. On average, they owed a shortfall of $9,348. Luckily a consumer proposal allows you to walk away from a bad car loan arrangement and include any car loan shortfall as an unsecured debt. Effectively, this is how a consumer proposal helps you clear your car loan.

Can you refinance a car loan while in a consumer proposal?

If your car loan payments are too high for your budget, but you don’t want to surrender your vehicle, you may wonder if refinancing the loan is a viable alternative. While you can refinance your auto loan during a consumer proposal, this is not done through the proposal but rather requires the agreement of your car loan lender. Your financing company may not approve your application after you file a consumer proposal because a proposal will cause a temporary hit to your credit report. For this reason, if you want to get a cheaper car or refinance, we recommend making those arrangements before you file your proposal.

And even if your lender is willing to refinance your vehicle, likely by extending your loan term, be aware you will likely pay a higher interest rate. Smaller monthly payments may fit in your budget but you will pay more in interest over time and carry the auto loan for longer than the car may last you. This will only increase the odds of owing negative equity debt and needing a costly loan rollover.

The point of a consumer proposal is to help you eliminate unsecured debts and more importantly build a healthy financial future. Your financial situation will still be at risk if you owe too much on your car, even if you have paid off your other debts. If you really need a vehicle while in a consumer proposal, we suggest doing a voluntary surrender first before you file and look for a more affordable car, with a short loan term (between 3-4 years).

How long after filing a consumer proposal can I get a car?

The amount of time it takes to get a car after you have successfully completed your consumer proposal depends on your financial situation and credit score. To qualify for low interest rates on auto financing, you will need to rebuild a good credit history. Saving a down payment can help with your application, will lower your monthly payments and can allow you to qualify for a lower rate.

There are car loan lenders who specialize in consumer proposal auto loans. Initially you will pay a high interest rate, however a reputable lender will help you manage your loans to lower that rate over time. Speak to your Licensed Insolvency Trustee about options in your area if you need to get a new car loan.

Remember that once you are debt free, you must be mindful of any new debt you take on and ensure that you maintain a low debt-to-income ratio. The last thing you want is to get back into a debt cycle.

Bottom line

As you can see, how you deal with car loan debt in a consumer proposal depends entirely on your finances and how you choose to proceed. If your car payments are unaffordable, we recommend finding a cheaper transportation alternative. Of course, if your car loan is reasonable for your monthly budget, then you can keep your car while eliminating other debts. We know having reliable transportation is important. Always talk with your Licensed Insolvency Trustee about your options.

If your car loan is causing you financial distress or if you have unsecured debts you want to eliminate, speak to a licensed insolvency trustee in a free consultation today and get on the path to debt relief.

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How you should proceed is based on what you want to do and whether you can afford your ongoing lease payments.

Do you lose your car if you file for bankruptcy?

The good news is you don’t automatically lose your car if you file a bankruptcy or consumer proposal in Canada.

If you financed your car, truck, van or any vehicle with a loan or lease, then when you file for bankruptcy in Canada, you can keep your vehicle as long as you continue to make the monthly payments.

The key here is you must continue with your obligations under the loan or lease agreement. Your lender or leasing company can repossess the vehicle if you don’t keep up with the required payments.

Your creditor can’t demand the vehicle back just because you filed personal bankruptcy. Even if your loan or lease contract contains a clause that says your lender can demand full payment, cancel the lease and take the vehicle back if you become bankrupt, this clause is unenforceable.

Specifically, the Bankruptcy & Insolvency Act provides a stay of proceedings against such actions.

Section 69(2)(b) prohibits secured creditors from taking possession of assets under a security agreement just because you filed insolvency unless:

• They repossessed the vehicle before you filed
• They gave notice of their intention to take possession 10 days before you filed
• You give them permission to take the car back

If you can continue to make your monthly payments, the leasing company, bank or car lender can’t cancel your vehicle lease or demand full payment of your car loan.

What kind of debt is a vehicle lease?

Most people understand that a car loan is a debt, but what about a lease?

A car lease is a financial agreement between you and the car leasing company to pay for the car’s use over a specific period. The car lessor owns the vehicle, and in exchange for the right to use the vehicle, you have fixed monthly payments for the duration of the agreement. Since you legally owe money under contract, you have a debt equivalent to the remaining payments.

When you file for bankruptcy, all your debts need to be listed, so if you have a vehicle lease, you need to notify your trustee.

Most debts in Canada fall under two categories: unsecured and secured. Unsecured debts include credit cards, lines of credit, or payday loans, for example. Vehicle loans, mortgages and any other debts tied to an asset are secured debts.

Vehicle leases are secured debts because the leasing company has a secured interest in the asset. While the debt will be listed on your Statement of Affairs as a secured debt, it is not dischargeable by bankruptcy.

Can you break a vehicle lease or car loan in a bankruptcy?

While you can keep your car if you file insolvency in Canada, that does not mean you should. An expensive car lease payment can be one reason you face debt problems, especially after factoring in other costs of driving, including gas, insurance, and repairs.

You can file bankruptcy in Canada, give up your vehicle voluntarily, terminate the lease and eliminate any remaining obligation for future payments due to the end of the lease term.

There are several reasons why surrendering your leased, or financed vehicle makes sense:

• You can no longer afford the monthly payments.
• You owe more than the car is worth. Longer-term vehicle financing (eight to ten years) has resulted in many Canadians finding their car loan or lease underwater. Facing a debt after your vehicle is no longer serviceable makes no sense.
• You no longer need the vehicle. Working from home during COVID-19 has made many people living in a city like Toronto, for example, rethink ownership of a car entirely.

You can walk away from an auto loan or lease before filing for bankruptcy. You simply return the vehicle to the leasing company but make sure you do it before declaring bankruptcy. The lessor will then be responsible for selling or auctioning the vehicle for fair market value. Any lease payments owing above the sales proceeds become an unsecured debt that can be discharged by bankruptcy.

Always advise your Licensed Insolvency Trustee that you will be surrendering the vehicle.  When reviewing claims filed in your bankruptcy by creditors, the trustee will ensure the debt owing to the leasing company is listed in your bankruptcy as a dischargeable debt.

One vital thing to keep in mind if you decide to break the car lease or loan is that you need to keep up with your insurance payments up until the point you drop the car off. This is because you are still responsible for the car while it’s in your possession, and should something happen to it, you’ll be liable to pay for all damages.

Should you continue to keep your financed car during bankruptcy or not?

Even though it is possible in most cases to keep your car even if you declare bankruptcy, this is not always the best solution. I meet with people every day who are very tied to their vehicles. The decision to buy or keep a car is an emotional one.

However, if you’re experiencing financial problems, you are probably looking for ways to cut your monthly expenses and save money. You are filing insolvency to get rid of overwhelming debt payments. A bankruptcy or proposal should be a fresh start. Keeping your monthly car payment obligation might hold you back.

If you can rely on public transit, it’s worth considering surrendering your car to save the monthly payment and other costs you have with the vehicle. Insurance, gas, parking, maintenance and repairs add up. For those times you need a vehicle, you can always turn to a rental car company.

However, if you can’t do without a car, you may consider surrendering your current vehicle and getting a cheaper car to reduce your monthly costs.

Again, this is best accomplished before filing. It is difficult (although not impossible) to qualify for a car loan while bankrupt, and if you do, lenders that specialize in bad credit car loans charge a very high interest rate. So, find your replacement vehicle, then surrender the car you no longer want, then file insolvency is what we usually recommend. After your bankruptcy is finished, take steps to repair your credit, and you should be able to qualify for a lower interest car loan within a year or two of completion.

What happens to my financed or leased car if I file for a consumer proposal instead?

When you file a consumer proposal instead of bankruptcy, you make a settlement with your creditors to pay back some of the money you owe. You keep all your assets when you opt for a consumer proposal, including your home and vehicle.

Vehicle leases are not affected by filing a consumer proposal, and if you can keep up with your monthly payments, you can carry on with your car lease.

If you want to walk away from your financed vehicle, the same process applies in a consumer proposal in Canada as in a bankruptcy filing. Let your trustee know you will be surrendering your vehicle as part of the proceeding, then contact the lender to let them know that you want to return the car so they can advise you about what to do with it and where to drop it off.

Choosing between filing for bankruptcy or opting for a consumer proposal depends on the personal circumstances. Deciding what to do with your vehicle should always be part of that discussion.

Bottom line

As you can see from above, you can generally keep your leased vehicle when you’re considering bankruptcy or consumer proposal in Canada.

Even though it is mostly up to you whether you want to continue to make payments on your car lease, make sure that you run the numbers multiple times to determine whether keeping the lease makes sense for you financially. If you’re not sure what to do, talk to your Licensed Insolvency Trustee, who can help you make the right money management decision.

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How do car title loans work?

Just as it sounds, a car title loan is a personal loan secured against the value of your vehicle. Applying for a title loan is easy, can often be done online, and may not even require a credit check, which is why car title loans are attractive to someone with low or bad credit.

As a secured loan, vehicle title loans use the value of your car to secure payment. The lender will register a lien on your vehicle, which will remain until the loan is paid in full.

To qualify, you must own your vehicle outright, have a valid driver’s license and car insurance. You do not however need a good credit score although the better your credit history the lower the rate will be on your loan offer. You will also need to provide the loan provider with proof of income or employment to show that you can afford the loan payments.

The lending company will ask for the make, model & year of your vehicle, and mileage to confirm what the car is worth. You can usually borrow 25% to a maximum of 50% of the vehicle’s estimated appraisal value.

Why would you get a car title loan?

There are many reasons why people apply for a vehicle title loan. As mentioned, it is an attractive debt consolidation loan option for those with poor credit. You might use the money to pay off overdue bills or pay down credit card debts or consolidate payday loans.

There can be benefits of consolidating your debt with a loan against your vehicle:

• It can help with monthly payments. Instead of juggling several overdue accounts, you now have one monthly payment on your car loan.
• You might get a lower interest rate. Because it is a secured loan, a title loan may have a lower rate than unsecured loans or other low credit score products like a payday loan. However, these loans are still high risk and can carry an interest rate of 35% plus additional fees.
• It can help improve your credit score. A title loan is an installment loan that, when reported on your credit report, can improve your credit history if you make your payments in full and on time.

The problem is many people use title loans as an alternative to a more traditional payday loan when in need of quick cash. I would caution against borrowing against your vehicle because you need money to pay for everyday living costs or unexpected expenses. While cheaper than a traditional payday loan, this is still a temporary fix to a cash flow problem.

What are the disadvantages of title loans?

As mentioned, car title loans can be very expensive. Rates of 35% and even 49% are not unusual, and administration and valuation fees can add several hundred dollars to the amount you have to repay.

However, the biggest disadvantage is the potential repossession of your vehicle.

If you can’t pay back the loan, your lender can:

• Charge additional NSF fees and interest penalties for late payments
• Place a negative mark on your credit report
• Seize and sell your vehicle to recover the remaining balance owing
• Sue you for any shortfall on the loan

We have filed bankruptcies and proposals for people who have taken out a title loan on top of credit card and other debts, only to see them lose their car because they could not repay the loan. This was an unnecessary loss since the debts they paid off with the proceeds of their title loan would have been discharged by bankruptcy and in most cases, they would have kept their vehicle since it was worth less than the allowable exemption limit.

Another concern is what happens if you still owe money on the loan when you want or need to replace your vehicle. You will be required to pay off the balance or roll-over the remaining loan into your new loan, which can lead to further debt problems.

Car loan:
Cost of goods: $25,995
Cost of borrowing: $18,297
78 month term
Total owing: $48,768
Current black book value of car: $13,775

— Scott Terrio (@ScottTerrioHMA) February 7, 2020

Alternatives to consolidating debt with a car title loan

You may want a loan to pay off existing debt or bills but refinancing your car may not be the best solution.

There are other options to consider.

• Obviously, it’s time to review your budget to figure out ways to pay down debt, not just move the debt around.
• Apply with more traditional lenders first, like a credit union, to see if they will provide you with a less expensive loan.
• Even taking out a cash advance on your credit card or going into overdraft on your bank account can be a cheaper alternative, with less potential downside, than taking out a title loan.
• If you are behind on a few bill payments, ask your creditors for extra time to pay or work with a credit counselling agency to arrange a payment plan.

If you already owe more debt than you can pay, and all you are doing is buying time with a short-term title loan, a better option may be to talk with a Licensed Insolvency Trustee about real debt relief options like a consumer proposal. The sooner you talk to a trustee, the more consolidation options you have.

The post Should You Consolidate or Pay Bills with a Car Title Loan? appeared first on Hoyes, Michalos & Associates Inc..

It may be that you can’t afford the payments.  Or maybe you’ve discovered that you owe two or three times what the car is actually worth.  Maybe it’s a lemon – you just can’t stand it anymore.  There are lots of reasons why people decide to voluntarily give their vehicle back to a finance company when they file for insolvency.  Here is how a voluntary surrender works and what happens to the debt.

What is a voluntary repossession?

If you have a secured car loan or lease, the lender (or finance company) has the right to repossess your vehicle if you fall behind on your payments.

What people don’t know is that you don’t have to wait for the creditor to repo the vehicle. You can voluntarily surrender the vehicle to your lender or dealership on your own.

To make a voluntary repossession, you notify your lender you will no longer make payments and wish to return the car. Your lender may ask you to drop the vehicle off at an agreed time and place, or they may send someone to repossess the vehicle from you.

After repossession, the lender will sell the vehicle and send you a statement of realization. Included in this statement will be a calculation of how much you still owe (called the deficiency or shortfall).  This number represents the difference between how much loan was remaining on the vehicle and how much the car was sold for. Your lender will also add in various fees, penalties and repossession costs.

The deficiency becomes an unsecured debt that you are responsible to pay.  The lender can sue you to collect, obtain a judgement in Court and pursue legal options like a wage garnishment. They may also send the account to a collection agency.

Dealing with the loan shortfall

If you are filing a consumer proposal or bankruptcy to deal with your other debts like credit card debt, payday loans or tax debts, you can include the shortfall or deficiency on the loan balance in your filing. Since an insolvency eliminates unsecured debt, this debt will be eliminated like any other.

It is important to understand that for your car loan debt to be discharged in an insolvency you must surrender the vehicle either before or as part of the filing. You cannot decide to return the vehicle weeks or months after you file. If you do, you will remain liable to pay any balance owing.

If you feel you have purchased or leased a vehicle that is more expensive than you can afford, it is critical that you talk with a Licensed Insolvency Trustee about your intentions prior to signing your paperwork.

When should you walk away from an auto loan or lease?

Car loan payments shouldn’t cause you further financial problems. If you purchased or leased a vehicle that is too expensive or the interest rate is too high and you are no longer able to make your payments, you need to consider your options.

The first option is to see if you can refinance or negotiate a new payment plan. You may be able to extend the term of the loan or arrange for a lower interest rate, however this often leads to a further concern. Long term loans mean you don’t pay off the principle very quickly and you can easily end up owing more than the car is worth.  In a five-year car loan for the first 3 years of the loan you usually owe more than the car is worth.  In six and seven-year car loans the problem is worse.  It can take four or even five years to get the balance of the loan below the value of the vehicle.  People compound this problem by trading their cars in while the loan value is higher than the car’s value, meaning your still paying for the old car with your new car payment.  A car loan rollover means you’re paying interest on the old car debt as well as making the payments on your new car.

A better option may be to hand back this car and purchase another, lower cost, vehicle. Because of the damage to your credit score of any repossession, it may be more difficult to finance another vehicle purchase except at a very high interest rate. You will need to do the math on how much you can save in terms of monthly payments by downsizing your car.

We also advise clients to voluntarily return the vehicle and arrange for a replacement prior to filing bankruptcy. This ensures that you only have one mark on your credit report, not two.

Again, most people who file a bankruptcy or consumer proposal keep their vehicle. Getting rid of other debts can free up enough cash flow so your car loan payment is affordable. But if your loan or lease payment is eating up more of your budget than it should, talk to your trustee about options to return the vehicle and discharge your obligation under the loan or lease.

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What is repossession

Repossession can happen whether you finance or lease your vehicle.

In the case of a leased car, the dealership or auto seller retains ownership of the vehicle. You signed a contract or lease agreement with terms allowing the leasor to seize the vehicle if you fail to keep up with your monthly lease payments.

If you purchased your vehicle, you own the vehicle, but the car lender will register a lien against your car as collateral to ensure payment. If you default on your payments, they have the right to repossess the car.

You will receive notice that you are behind on your payments, but the lender does not have to notify you when they send someone to pick up your car. If the lender takes action, this is known as an involuntary repossession. If you know you can’t afford your vehicle any longer, you can also surrender your vehicle willingly, something known as voluntary repossession or voluntary surrender.

Loan deficiencies

Unfortunately, the repossession process does not cancel your obligation to make payments under the loan or lease agreement.

Once they seize the vehicle, the lender can sell it or put it up for auction. The proceeds of the sale will be subtracted from any balance that you owe. Repossession costs, interest charges, and late payment fees will be added.  This deficiency in realizations is now an unsecured debt which you  still owe to your auto lender.

The lender will also report the late payments on your credit report, which will impact your credit score going forward. This note will remain as part of your credit history for up to seven years.

Avoiding repossession

The only way to avoid repossession is to make payment arrangements with your lender. Any payment plan will require you to catch up on all of your payment arrears and repay any repossession fees and recovery costs they may have incurred.

Filing bankruptcy will not stop a repossession because your auto lender is a secured lender. Secured creditors are not prohibited by the automatic stay in bankruptcy or consumer proposal from enforcing their security rights.

However, if you are struggling with your car loan payments because of other unsecured debts like credit cards or high-cost financing loans, it may be possible to file an insolvency proceeding with a Licensed Insolvency Trustee to eliminate this debt, freeing up cash flow in your budget so you can afford to catch up and continue with your car loan or lease.

Walking away after repossession

If you decide to walk away from your car loan, or if your lender has already repossessed your vehicle, it is possible to file bankruptcy or a proposal to eliminate the unsecured deficiency.

Car repossession does not have to lead to continued financial hardship. While we don’t recommend people pursue the last resort of bankruptcy just to deal with a car loan deficiency, if you have other debts filing a bankruptcy or proposal to deal with all your debt problems can make sense.

Roughly 10% of all insolvencies in Canada involve vehicles with a deficiency or shortfall. So, while it is not common, it certainly is an option if you find yourself having purchased or leased more car than you should have.

The post Dealing with Car Loan Debt and Vehicle Repossession appeared first on Hoyes, Michalos & Associates Inc..

Enter Scott Marshall. With 30 years of experience in the driver training industry, he shares his first-hand knowledge of how to make car ownership affordable. He also suggests that there is a correlation between safe driving and saving money.

8 Ways to Make Car Ownership Affordable

Scott shares the following tips for successfully keeping your car buying costs low:

1. Buy used. According to Scott, a used car is a great way to achieve affordability. A used vehicle can be reliable if you’re strategic in your purchase and maintain your car well. 
2. Buy a car that’s only 3 or 4 years old. Your car will still be very close to the most modern vehicle, but at only 60% of the cost. Don’t worry about newer features because the most important ones (anti-lock brakes, electronic stability control, and airbags) are all standard anyway.
3. Buy from a credible dealer. Browse websites like Auto Trader, where you can find a car that is certified pre-owned, meaning it’s backed by the original manufacturer. That also means it’s  been through rigorous inspection.
4. Save on insurance proactively. Your insurance payments depend partly on the type of car you buy. Minimize these monthly costs by asking your insurance company how much your payments will be based on vehicle models.
5. Test-drive more than one car. Don’t give up if you’re unhappy with your first test-drive. If you’ve found a model that fits your budget, test multiple cars. They will each drive differently, even if they’re the same make.
6. Save money on tires by alternating them. Scott suggests buying winter tires in the colder months to replace your all-seasons. Even at a temperature of plus 7 degrees Celsius, all-season tires will harden and wear more quickly. By investing in winter tires, you can extend the life of your all-seasons by 3 or 4 more years, saving you a lot of money in the future.
7. Consider getting a CAA membership. CAA memberships cost less than $80 a year. While this still sounds like an added expense, it saves you hundreds of dollars on a towing service in the event of a roadside emergency. 
8. Determine the kind of car you’ll need 5 years from now. Think carefully before you buy your vehicle. If you think you’ll need a bigger car in the future, don’t buy a smaller one now. You’ll save a lot more money because you’ll avoid rolling over auto loans and risking financial trouble. 

Read More: How Can Car Loans Lead to Insolvency? 

Your Driving Style Can Save You Money

Driving habits play an important role in ensuring that car ownership remains affordable.

Drive safe. Accidents are costly. The only way you can drive safely is by being attentive at all times. It’s for this reason that Scott says not to rely on any automated safety features your car may have. For example, even if your car has a blind spot checker, you should still be checking your blind spot yourself. Because should this feature fail, you’ll most likely end up in an accident. And as you’re probably aware, an accident leads to higher insurance premiums, which add to your monthly expenses.

Read More: Avoiding Debt Problems After a Personal Injury

Other cost saving driving habits:

• Gentle acceleration to save on fuel; and
• Easing off the gas early for a red light to save brake wear, which saves on maintenance and fuel costs

Owning a car doesn’t have to be a huge burden on your finances. As long as you buy what you can realistically afford and drive with caution, it’s possible to have this necessity without breaking the bank. 

For more details on what to look for when buying a used car and safe driving tips, tune in to the show or read the complete transcription below.

Additional Resources

The Safe Driver Blog
Scott Marshall Twitter

FULL TRANSCRIPT – Show 228 Buying and Maintaining an Affordable Car

Doug Hoyes:    Cars are great; they take you places, like your job, so for a lot of people a car is essential. Cars are great but they can also be the cause of significant financial problems. According to market research company JD Power, 72% of new vehicle loans taken out in Canada are now for six years or longer, 44% are for seven years and eight year loans are now more than 10% of all new vehicle loans. The longer the loan the more likely you’ll have problems paying it back and that’s become an increasing problem for my clients.

                          We’re going to update it in 2019 but up until the end of 2017 or Joe Debtor Hoyes Michalos bankruptcy study shows that more than a third of people in Ontario, who go bankrupt or file a consumer proposal, have negative equity in their car. That means they owe more than the car is worth and they can’t afford to make the payments.

                          As car loans become longer that becomes an even greater problem. I can think of hundreds of people I’ve met over the years, often young men, who are paying up to half of their income for their car. They make $2,000 a month in their job and they’re paying $500 for a car loan and $300 a month for insurance and a couple of hundred dollars a month for gas and maintenance, so it’s not hard to see how owning a car can lead to financial trouble.

                          So what can you do to protect yourself? Should you only buy new cars or only buy really old used cars? What options should you get and which ones should you avoid? On today’s show we aren’t going to focus on car loans and debt instead we’re going to take a very practical look at how you can get the most bang for your car buck. So let’s get started and meet my guest today. Who are you and what do you do?

Scott Marshall:  Well, I’m Scott Marshall and I am the director of training for Young Drivers of Canada, 30 years at Young Drivers. I’m also a road safety blogger and for the first three seasons of Canada’s Worst Driver I was their head instructor and on-air judge.

Doug Hoyes:    Excellent, Canada’s Worst Drivers. And I remember the show, I mean you had people and basically critiqued all the bad things they did driving. What were some of the things that stand out when you look back on that these are the obvious mistakes people make or mistakes people shouldn’t be making?

Scott Marshall:  Well it goes from one end of the scale to the other, they were either over confident in lack of ability or under confident and lack in needing the ability of their passenger to help them drive. And over time we were hoping that they would change their behaviour and their thought process because really it’s your brain that makes all the choices, it shouldn’t be your passenger’s brain.

Doug Hoyes:    Passengers can get you into a lot of trouble.

Scott Marshall:  They do and especially passengers who think they know what they’re doing and in reality they don’t.

Doug Hoyes:    Yeah, that’s even worse. Now you said that you’re a blogger, what’s the address of your website, where can people find that?

Scott Marshall:  My blog is thesafedriver.ca.

Doug Hoyes:    thesafedriver.ca and we’ll put links to that in the show notes so people can find it. Now I’ve read a bunch of your blogs and in one of them you put a phrase which I had never heard of, target fixation. What is that, what are you talking about there?

Scott Marshall:  Yeah, if you want to avoid something you avoid looking at it. So, when you’re driving and you want to avoid driving into the snow bank then if you look at the snow bank where you look is where you go. It’s like athlete’s do, the athlete has a target they look at their target and they throw their ball into the target. You look at a snow bank and you go into a snow bank. So you look into the open space where you want the car to go and then steer to get there.

Doug Hoyes:    So that’s the key. Okay, so there you go, we’re given free driving tips here, look where you want to not where you’re heading.

Scott Marshall:  That’s right, not what you’re trying to avoid.

Doug Hoyes:    Yeah, which is naturally what you’d be focused on. Okay, so let’s get into the kind of money aspect of this here. So, let’s assume that I don’t have a lot of money, which is the case for most of my clients, and, you know, maybe I went through a bankruptcy or consumer proposal, I had to give up my expensive leased car but I need a car to get to work. And we’re recording this today in my office in Hamilton, up on the mountain. And this is a town where people drive cars. Yes, there’s a bus, it stops right outside here, but this is an area where cars are very prevalent.

                          So, you know, I need a car to get to work, my shifts starts at 5 in the morning, the buses don’t start running till 6, I’ve got to have a car, it’s got to be something reliable but I can’t go out and, you know, just be buying a brand new car all the time. So if you were advising someone in that situation what should they be looking for? Should they be looking for, you know, yeah, you’ve definitely got to buy a brand new car because it’s got the best warranty, in the long run you save money or should you definitely be buying a 10 year old car because they only cost a thousand bucks and you can’t go wrong? Where do you – what’s your advice in that situation?

Scott Marshall:  Let’s go right in the middle of that. Buying a three or four year old vehicle you have something very close to the most modern vehicle. In some cases there’s still part of a warranty, perhaps a drive train warranty, maybe not your basic warranty but you’re going to have as far as your engine and transmission goes.

                          But you have something that’s more reliable getting into an older vehicle, the parts are older, they’re more worn down, there’s more kilometres on that. And it’s like a pair of running shoes, they’re still comfortable but they’ll leak in the rain and so you’re going to have to get something that’s newer, not necessarily new and something that’s reliable. It’s going to cost you maybe, you know, 60% of what a new vehicle would cost.

Doug Hoyes:    So you’re talking a three or four year old car.

Scott Marshall:  Yeah.

Doug Hoyes:    Because a new vehicle the moment you drive it off the lot you’ve lost, I don’t know, 10%, 20%, whatever it is.

Scott Marshall:  Depreciation, that’s correct.

Doug Hoyes:    So it drops pretty quickly.

Scott Marshall:  It does.

Doug Hoyes:    So you would be targeting three to four years old because the price could be 60% of what the brand new vehicle is, it’s still got a bunch of the bells and whistles. It doesn’t have the hand crank like we used to use.

Scott Marshall:  Well it might still have that but the reality is that every six months or every three months there are new safety features on vehicles. We have roughly 25 sensors on our vehicles now so these sensors help us with our backup camera, lane departure, ESC, was a standard feature a few years ago in Canada along with ABS brakes.

Doug Hoyes:    And what is ESC?

Scott Marshall:  Electronic, stability control. It helps you – it helps slow down the car if you’re about to take a corner too fast without you touching the brakes so it’ll do it automatically. Not that you want to try it to find out what it does but you can check out my blog and it’ll tell you what it does. But the three and four year old vehicle will still have those, you don’t have to get brand new to get that.

Doug Hoyes:    Got you, so you’re getting the benefit. And like you say the drive train warranty, or something, well it may be a five year warranty or X number of kilometres or something like that so you’re getting the best of both worlds.

                          Okay so that makes sense then so that’s a value proposition there. Are there any, I mean you just mentioned a bunch of them, options? Are there any options that are either really good to have on a car that definitely make it safer or that you know what you’re paying a lot of money for something that it’s kind of like buying a house well, if you put in a pool you never get your money out of it they say, right? Is there anything in the car world that’s similar to that?

Scott Marshall:  Because there’s been a lot of features that are standard now, like as I mentioned anti-lock brakes, electronic stability control, all the airbags have been around forever so it seems in many people’s lives, there’s not a lot that you have to worry about needing because they’re already standard feature. But if you have a back up camera, they’re helpful in a tight spot, they’re not necessarily something you have to have but they are helpful, things like that.

Doug Hoyes:    So that would be an example of something well, if you’ve got a choice, particularly paying a few extra bucks to get a vehicle with a backup camera, you’re in a better shape.

Scott Marshall:  Fog lights too, I mean you don’t think about that but if you’re in that type of area where it’s foggy and around here it is then yeah having fog lights on a vehicle is a perk, it allows you to see the road a little better. I’m all about the safety part but if you can save a few bucks and be safe let’s do both.

Doug Hoyes:    Even better. So let’s say I take your advice and I want to buy, I want to target a three or four year old car. Where should I buy it then, should I go to a used car lot, should I go to Kijiji or find it online? Where would you be sending me?

Scott Marshall:  The newer and the upscale lots can have better vehicles, lower mileage, which again means it could very well last you longer. There are some lots that will go to the wholesaler, get the vehicles and there could be something seriously wrong with it. So I would go to a reputable place, you can go to the online magazines such as Auto Trader. Dealers will advertise on Kijiji as well so you could check both those places and there’s a few other websites that you can search out.

                          But once you have an idea about what’s out there and what your budget is, go out and test drive a bunch, find out what works for you. Just test driving one vehicle say a Honda Civic, doesn’t mean that, and that one didn’t drive so well, doesn’t necessarily mean all Honda Civics are like that. Go and test drive a couple of others, maybe it was just that one that didn’t perform as well as you like.

Doug Hoyes:    Well and we all have different body tops so if you’re short maybe you want a car that rides higher up, if you’re really tall maybe that little tiny compact isn’t going to work for you. So, I agree, getting in them how else can you know?

Scott Marshall:  That’s right. And part of your decision making is also what can you afford but also about the fuel, check with the insurance company too, find out okay, if I bought this vehicle what would my insurance be?

Doug Hoyes:    That’s’ an excellent point. Especially if you’re younger the insurance can be costing you many hundreds of dollars a month if you buy this kind of car versus that kind of car and you can save a hundred bucks in insurance well that’s huge, that’s huge.

Scott Marshall:  Yeah, it is, $100 a month can go a long way on a tight budget. And it’s something that what kind of safety rating does the vehicle have? SUVs tend to have a little higher safety rating so you may want to consider that. And a lot of them are now more economical to operate than they were a number of years ago.

Doug Hoyes:    So we’re recording this in January, 2019 the middle of the Canadian winter. Snow tires, what are your thoughts on snow tires? So I’m asking the question from two points of view, money and safety. So I think we all kind of agree that yeah, if you’re on slippery conditions, snowy conditions, whatever snow tires are better than non snow tires, and you can tell me if that’s true or not. What about from a money point of view, are snow tires a good investment or not, from a money point of view?

Scott Marshall:  From a money point of view they very well can be if you are keeping the vehicle for a few years so if you keep the vehicle for three or four years that’s three or four winters you’re going to have them with. And while your winter tires – they’re winter tires versus snow tires because it’s a season, not necessarily the elements, so the cold weather affects the all season tires. They become very hard like a rock when the temperature drops to seven Celsius, not even minus, but down to seven. So having the winter tires for five or six months during the cold weather you’re actually saving your all season tires so they’re going to last you an extra three or four years.

Doug Hoyes:    So if I’m going to have my car for the next four or five years then it’s kind of a no brainer.

Scott Marshall:  It is, it is and if can go to used tire places and get some winter rims for economical costs so then knowing someone and changing your tires yourself it doesn’t cost you anything to switch your tires over.

Doug Hoyes:    Yeah and that’s exactly what I do. I don’t change them myself because I’m an accountant. You know what, I’m sure I could learn and when I was a kid we had, you know, the ramps and the jacks and the things to change your own oil and anything but I find going to the place and paying the guy money makes the most sense. But I do have the steel rims, I keep the snow tires on those so swapping them out is no big deal.

                          So, okay so if I’m keeping my car for an extended a period of time – obviously if you switch cars every year and switch models well then the old snow tires aren’t going to fit on the new one potentially but if you’re sticking with the same model and I’ve had the same model of car for I don’t know 10 years so snow tires can keep going. And from a safety point of view, and again I just realized I said the wrong thing again, that they’re not snow tires, they’re winter tires because it’s a season, there’s no doubt they are safer in the winter than all seasons.

Scott Marshall:  They are. So let me bring it back to the economical side of it. You’ve got some slippery conditions, you’ve got some snow, you’ve got some deep snow and you’re stuck and you’re going to get back and forth and you’re pressing the gas. You’re wasting this fuel to get out of some snow drifts where winter tires you can just drive out. I was parked in the parking lot, dug out my car with a shovel I had in my back of my car, drove out no problem. Winter tires on. The person up the laneway, back and forth, back and forth, back and forth, he used a lot more gas than I did. So now each time it snows do I want to get stuck and use up a lot of fuel or do I just drive out?

Doug Hoyes:    And I guess that’s not easy on the engine either when you’re spinning your tires and all the rest of it.

Scott Marshall:  Yeah, it’s not a good technique to get out anyway.

Doug Hoyes:    It’s probably not great.

Scott Marshall:  No, it’s not.

Doug Hoyes:    Okay, so winter tires probably a good investment. Another investment I’ve always made is I’m a member of the Auto Club, CAA and I’ve been a member of that since I was like 16 years old and I think my dad got me into it. Because his thought was well – because back in those days I was driving 10, 15 year old cars, so we knew they were going to break down, we knew there was going to be a problem, so you need someone to come and get you well, they’ve got a tow truck I don’t. From a financial point of view, is that a good strategy or is that a waste of money?

Scott Marshall:  No, it is a good strategy for the cost, which I think is like 80 bucks. And then if you have a family member, you can be an associate member which is like 45, 50 dollars. So think about what a tow is going to cost you, one tow stranded at night where you car wouldn’t start, one dead battery, one stuck in a snow bank, just one is going to cost you more than your membership. So, it’s a good thing to have. There are some vehicles that are still out there that the automaker allows they have the roadside assistance that comes with the vehicle. Depends again on how old the vehicle is.

Doug Hoyes:    Yeah, so if you’re buying a brand new vehicle that may already be included, not a big deal.

Scott Marshall:  But if it’s a used vehicle, four years old, what’s still left on it if there is anything at all? And having an Auto Club membership or a very handy parent, either one comes in handy.

Doug Hoyes:    Well and that’s exactly what I’ve done and when my son started driving yeah, you can put him on as a supplemental. It doesn’t cost – it’s certainly not double the cost to put a second person on. So it kind of makes sense.

                          Now at the start of the show I said it’s becoming more and more common to have longer and longer loans, six years, seven years, eight year loans. That sounds crazy to me because in my experience your typical car doesn’t last for eight years. Am I wrong, are cars lasting longer, is an eight year loan actually not a bad thing or is it much more likely that you’re going to be turning the car over more frequently than that?

Scott Marshall:  Depending on what you use your vehicle for, if it’s your typical to and from work and the additional pleasure use, you’re probably putting 20 to 25,000 K on a year. Your car’s going to last you awhile, it really will. They’re built better now. So a seven year, eight year loan a lot of it is so that people can afford it.

Doug Hoyes:    The entire reason, yeah.

Scott Marshall:  They’re so expensive now, which comes back to a three, four year old care, it could be 60% of the cost of a brand new one so it’s more affordable. But yeah, cars do last and one of the plusses as a driving instructor if we had a chance to own our vehicle for a year after it was paid then that’s extra because we put a lot of kilometres on our vehicles. But we want something reliable. We don’t want to have to cancel lessons because our car’s in the shop.

Doug Hoyes:    So the cars you’ve got at Young Driver’s of Canada, what kind of mileage, what kind of age is it then when you then get rid of them and get another one?

Scott Marshall:  Well, we probably generally for the most part won’t keep anything past four or five years. We’re putting 50 thousand K a year so more than twice as much than the average driver. And it’s hard kilometres because it’s someone who’s just learning. So the brakes are a little, you know, get a little worn and the tires don’t last as long as years wise, they’ll probably last us two years.

Doug Hoyes:    But you’re just replacing the brakes, replacing the tires and keeping the car.

Scott Marshall:  That’s right.

Doug Hoyes:    So the car gets to 250,000 and okay well then that’s probably when we’re turning it over. But by that point it might have a couple of sets of tires, three sets of brakes, whatever.

Scott Marshall:  Exactly, that’s right, that’s right. But to the average driver who’s commuting to work and taking their family out and vacationing, you can see your car lasting a good 10 years but part of that is preventative maintenance.

Doug Hoyes:    Right. Are you spending the money then to do all those things that we just talked about?

Scott Marshall:  That’s right.

Doug Hoyes:    And the problem I see people getting into is I don’t want to keep the car for 10 years or there’s all these new bells and whistles or, you know, I just had another kid so now I need a van, I can’t be driving a sports car anymore.

                          So the reason that I said at the start that a third of our clients end up having a short fall on their vehicle when they come in to see us is because they’ve got a five year loan, they keep the car for three years and then they want to switch to a different vehicle. There’s a short fall and the car place says no problem we’ll take that shortfall and roll it into your new vehicle. So now I bought a $30,000 vehicle but I’ve got a $35,000 on it because I had to roll in from what was there before and I keep that vehicle for three years and now I’ve got to roll it into something else.

                          Well now I’ve got a six or seven thousand dollar shortfall that I’m rolling. At some point you get to the point where you’ve got a $20,000 loan on a $6,000 vehicle. And when people come in to see me I say well, here’s your choice, you can keep the vehicle and go bankrupt but you’re going to have to keep paying the $20,000 loan for a $6,000 vehicle. It doesn’t make a whole lot of sense.

                          Maybe you’d be better off to say okay, here you go car lender, here’s the keys, take the vehicle. And then the short – you don’t have the vehicle anymore but that shortfall can then get included in your bankruptcy or proposal. That’s the big problem with the long loans if you’re not going to keep the vehicle for that length of time. So I guess that’s kind of the key, how long are you really going to keep it for?

Scott Marshall:  Yeah, exactly. And I know that my older son wanted to buy a vehicle and he decided he wanted to pay cash.

Doug Hoyes:    I like him already.

Scott Marshall:  Yes. He was working extra hours, worked a long time to get the money and I went out and helped him. And the thing is that where he was working at the time he could not afford a monthly payment. He had to have zero money per month out, other than the insurance and the maintenance. And so now he wants to get a truck, which –

Doug Hoyes:    Costs more.

Scott Marshall:  Costs more, more on fuel, more maintenance, possibly more on insurance, that has not been determined and then you have your monthly payment. So part of it is it’s wants versus needs. Right now he has a reliable vehicle, it gets him to work, gets him home, gets him to come and visit and so forth.

                          And that I think is important, that you have to kind of decide well, I’d like to have that, there’s lots of things I’d like but it’s what do I need. And he got himself a vehicle that was reliable, a little older than the four year but it fit within his budget and it’s all good. And an added thing that people can also do if it’s doesn’t have as much of the warranty is you can buy an extended warranty.

Doug Hoyes:    And is that a good deal or you end up paying a lot more than you’re actually getting?

Scott Marshall:  It’s insurance. You know, I have home insurance in case there’s a fire. I haven’t had a fire but it’s nice to know that I have it.

Doug Hoyes:    Yeah because a fire is catastrophic, you end up having to spend half a million dollars while spending the money each month is a much better deal.

Scott Marshall:  Exactly or whether or not you have a break in and these types of things and your car insurance type of thing. It’s insurance, it’s insurance for the maintenance of your vehicle. And you just have to put that into your budget. So if it’s going to cost you, you know, $80 for this extended warranty then it’s $80 a month that you put into your budget.

Doug Hoyes:    Yeah and I guess you’ve got to do the math and figure out okay so over the next two or three years what is likely to go wrong with my car and if it’s brakes, tires you can estimate what those costs are pretty accurately and it’s probably not, an extended warranty doesn’t cover that anyways. But if the engine goes okay, that costs more money and is it worth it then to have – so I guess you’ve got to fully understand what the warranty actually covers and what it doesn’t cover and then decide for yourself. If you’re driving a $2,000 car I guess when it breaks I throw it out and I get another one kind of a thing.

Scott Marshall:  Yeah, exactly. So, it’s a lot of long term planning, don’t think of today, think of next week.

Doug Hoyes:    Now you mentioned long term planning, so you’ve been in your world for 30 years, it makes you about as old as I am I guess, so we’re both 25 years old. So do you notice, this has nothing to do with money I’m just curious here, do you notice a difference between drivers today and drivers from 20, 30 years ago and maybe even specifically the clients you’ve got at Young Driver’s of Canada, the people you’re training, are they different or is it really just the same, a driver’s a driver?

Scott Marshall:  Generally speaking there’s a bit of a difference. A lot of safety features on a lot our vehicles, a lot of advancements. Drivers are relying on those advancements to help them drive, which is a mistake. For example you have a blind spot indicator on your car, it flashes if there’s someone in your blind spot so you don’t bother checking. And if it doesn’t flash you just move over. There’s snow on the sensor, there’s ice, there’s mud, there’s grime.

Doug Hoyes:    There’s a car there.

Scott Marshall:  Yeah and crashes occur. The drivers are still out there. In Ontario there’s roughly 100,000 new drivers every year. And so our roads are getting clogged more and more now than when I started 30 years ago at Young Drivers. So we have to share, we have to – there’s still the aggressive drives, they were always there. The old cars from the 80s when I started at Young Drivers had the steel bumpers that you hit the steel bumper and nothing happens.

Doug Hoyes:    Nothing happened.

Scott Marshall:  Yeah, nothing happens. That’s not the case now, everything is so cosmetic. You look at a vehicle after a collision you think okay, maybe $1,500, $2,000 damage, no it’s $9,000 because there’s so much underneath the vehicle that, you know, your deductible, which people have to remember that you have to live with that deductible.

Doug Hoyes:    Yeah, you don’t just get a hammer and bang out the dent from the fender, you need a whole new front end.

Scott Marshall:  That’s right. And there’s so much electronics behind the shell of the vehicle. You’re driving a computer now and people forget that.

Doug Hoyes:    Well and that’s interesting what you say about the safety features, it makes me think of hockey. You know, back when, you know, when you and I were born, nobody wore a helmet when they played hockey and yet you never heard about hockey players suffering from concussions. I mean obviously they did but when I was running you into the boards I was a little more careful because I knew I would kill you. So okay, Gordie Howe had pretty good elbows, it’s not like he was the cleanest player in the world but he wasn’t running at people’s heads well now they’re wearing all this body armour, I don’t have to be as safe.

                          And I guess it’s the same with the cars, I got all these safety features and let’s face it cars are going to be driving themselves if they aren’t already, right? So why do I even have to pay attention?

Scott Marshall:  Well, yeah and I mean yeah, now part of the electronics are the automatic emergency braking. Our vehicles are semi autonomous now that allow us to do things. There’s even the parking. I did a couple of videos, one with The Toronto Maple Leafs and one with The Raptors where they have park assist and we didn’t tell the other participant. So we’re doing a [Leo Comber], I was doing a parallel park without touching the steering wheel. And Matt Martin’s in the backseat not knowing that this vehicle could do that.

                          So the car can park on itself so why can’t it do other things by itself? And it will eventually but we just have to remember that we’re the one in control, if something goes wrong you have to be ready to touch that brake. You have to be ready to steer, you still have to look where you want the car to go, you’re still the captain of the ship.

Doug Hoyes:    And that’s pretty crucial. So to end it then it sounds like there’s a pretty big correlation between driving safely and saving money.

Scott Marshall:  Yeah, there is. If you drive safely, gentle acceleration you’re saving fuel, easing off the gas early for a red light, you’re saving fuel, you’re saving brake ware. That saves you money on your maintenance, that saves you money on your fuel. And if you’re looking out for the other guy, you’re not colliding, you’re saving your deductible, you’re saving your vehicle, you’re saving your pocketbook.

Doug Hoyes:    Excellent. Well, so being a safe driver can save you a ton of money potentially, which I never really kind of put it in those terms before but that kind of makes obvious sense. So final question, what is your overall advice then, and maybe you’ve already hit it all, but if you’re talking to, you know, your son when he first started driving or any of the other new 100,000 drivers or more likely someone like me who’s been driving for I think it was I got my licence 38 years ago, two days ago. Because it was – if my math was correct there, I’d have to do the math, I might be a year or two off. But we’re recording this on January and I know for a fact I got my licence January 2nd.

Scott Marshall:  I got mine January 7th.

Doug Hoyes:    Well, so there you go so we’re coming up on your anniversary too then. And I know that because I was, you know, 16 and a half and my dad said okay, you’re the oldest kid, I’ve got to get you driving so you can schlep all your siblings around. And I didn’t have an appointment or anything but it was a snowstorm that day so everybody else had cancelled their appointment so we were able to just walk right in and they couldn’t fail me because nobody could see the lines. There was no snow everywhere so it worked out fantastically.

                          So, what advice then would you be giving someone who is either a new driver or someone like me who’s been driving for so long that I assume I know everything I’m doing and probably have a whole lot of bad habits that are not safe? What are some of the obvious things that maybe I should be thinking about to keep myself out of trouble?

Scott Marshall:  Despite what you do for a living, driving is your job. If you have an appointment, you have a meeting, you have something on your mind relating to work, relating to home, it has to go on the passenger seat and you focus on your driving. We have distracted driving laws that just took place. And distracted driving laws in Canada and Ontario specifically are to do with electronics but it’s not just electronics. It’s your mind, if your mind is elsewhere, your mind is not on driving.

Doug Hoyes:    That’s the biggest distraction of all.

Scott Marshall:  We are our own worst enemy because we have so much. We live in a busy society, our lives are busy, my life is busy. Even though my kids are getting older it’s still a busy life, but when I get behind the wheel that’s my job not because I’m an instructor but because what if the person that sits next to me is daydreaming and they start drifting out of their lane, I need to see that. I need to honk the horn to warn them or slow down and make sure they don’t hit me.

                          I need to know that the driver behind is too close, maybe change lanes to get rid of them, maybe they’re anxious, maybe they’re in a hurry. Driving is my job and I need to remember that. And that’ll save me, my passengers, my bank account, my car, you name it.

Doug Hoyes:    Excellent. Well, I think that’s fantastic advice and a great way to end it. Driving is your job and it’s not just you you’ve got to worry about, in fact it’s everybody else you’ve got to worry about as well.

Scott Marshall:  Absolutely.

Doug Hoyes:    Scott, thanks very much for being here today.

Scott Marshall:  Always a pleasure.

Doug Hoyes:    Thank you. That is Scott Marshall and I’m going to put links in the show notes to everything we’ve talked about. We’ll have full show notes including a full transcript and links to Scott’s website over at hoyes.com. And you can watch the video of all of our shows here on the Debt Free in 30 channel on YouTube and you can get the audio podcast on all podcasting apps so please subscribe so you don’t miss an episode.

                          Thanks for listening, until next week I’m Doug Hoyes. That was Debt Free in 30.

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What I am talking about is a Judgment Creditor. For example, you failed to pay your cash instalment loan from some payday company or on-line lender. They have no right to your car, but your creditor might take legal action and apply to the court for a judgement against you for the debt in question and then ask for a Writ of Seizure or Writ of Execution against your car. If they receive such an order, they can then ask a sheriff or bailiff to seize your vehicle (or any other asset under the order). So will they?

If you file bankruptcy or a consumer proposal you receive protection from creditor actions which means your car is safe from seizure for unsecured debts. But what happens if you don’t file for bankruptcy protection? The answer might surprise you.

Ontario Exemption Limits

Ontario has something called the Execution Act and included in this law is a clause declaring that a motor vehicle worth up to $6,600 (as of December 1, 2015) is exempt from seizure. Sounds like your car is safe (if it is worth less than $6,600), but is it?

You Must Claim Your Exemption Within 5 Days

Ontario recently changed the exemption laws surrounding creditor action. As of December 1, 2015, the Execution Act also added a new section that deals with what to do if an exempt item has been seized.

The new law says that if a sheriff or bailiff picks up an item that “may” be exempt under the law, they are required to serve notice on the owner (or the owner’s last known address) that the owner has the right to claim the exemption. If a claim is not made in 5 days from the date of service, then the item is no longer exempt. If a claim is made within the 5 days, but the owner fails to pick it up in a reasonable length of time (which is not defined in the Act), it also loses its protection.

This means that a creditor with a judgment against you that has obtained a Writ of Seizure or Writ of Execution could seize your car, hoping that you won’t claim the exemption in time, which would allow them to sell it. I don’t think a reputable lender would do such a thing, but unfortunately, there are some less than reputable businesses out there.

Voluntary Consent To Sell

An interesting side effect of these new rules is that you have the right to say to someone that has seized an item (like your car) that you want to claim the exemption, but will consent to the sale of the item. In these cases, the proceeds from the sale first cover the costs of the sale, and then go to you, up to the exemption limit for the item.

For example, you owe a loan company $10,000 for some on-line debt and they sue you and obtain a Writ of Seizure.  You allow them to take your car and sell it, but you claim your exemption limit of $6,600. The car sells for $8,000 at auction. The costs to sell are 15% or $1,200, so there is $6,800 left over.  The first $6,600 has to be paid to you. The loan company will get $200.  Which may make you ask, why did they bother? Just to be nasty or perhaps to threaten you into paying more than the $200 to save your vehicle.

What To Do If You Are Sued

What does all of this mean to you?  If you are being sued for a debt, pay attention to the notices that you receive.  If something you own is seized and you didn’t pledge it as security for the loan, then make sure you take the time to submit a claim for the exemption if you want the thing back, or the money from the sale.

Filing for bankruptcy protection or filing a consumer proposal will stop a lawsuit, or if your creditor already has a Writ of Seizure, bankruptcy or a proposal can stop that too.

If you find yourself being sued and you feel you don’t owe the debt or want to dispute the suit, you may want to speak with a lawyer.

If you agree the debt is real and you simply can’t pay, you may want to talk to a licensed insolvency trustee about your options. If you are being sued by one company and there are others that you are also indebted to – it may be time to consider a bankruptcy or proposal to clean up all of your debts.

The post Can Unsecured Creditors Take My Car For An Unpaid Debt? appeared first on Hoyes, Michalos & Associates Inc..

As cars are getting more sophisticated and fitted with new gadgets and features, which means they’re also getting more expensive. You’re no longer buying just a car, you’re buying a driving computer. Instead of the days where we could just pay cash up front for our vehicle, we’re presented with loans and leases as a way to stretch the total amount over a number of years. In some cases, car loans extend up to eight years.

This makes cars more affordable for the every day consumer, which is great for car companies as they’re able to continue with the technological evolution of their cars.

How Car Loans Could Lead to Debt Problems

Because there are always newer, more technologically advanced cars coming out, people trade in after a few years to get a newer model. If they were paying for each car in cash, that would be great for the dealer and great for the consumer. But a statistic from DesRosiers Automotive Consultants states that 85% of cars are now bought with debt.

Consumers have started trading in their car, which they paid $30,000 a few years ago and they still owe $15,000 on the car. The car’s trade-in value is only $10,000 now so you’re rolling $5,000 over into your new car loan. So the shiny new $30,000 car is actually costing you $35,000 when you factor in the money you still owe on your previous vehicle.

That’s fine if it’s a one-time transaction, but if you’re getting a new car every two or three years, those rollover costs add up.

Car Loans and Insolvency

Our Joe Debtor study shows that more than one-third of our clients trade in a car with negative equity. Negative equity means that they owed more to their creditor than what their car was worth in resale value.

If you are considering a bankruptcy or consumer proposal it’s important to know that you can keep your car after filing insolvency. Your car is a secured asset so, if you can maintain your car payments, you can keep your car. Something you may want to think of is “is it worth it?”

If your car is only worth $10,000 for a trade-in or resale, does it make sense to pay off your remaining $15,000 that you owe to your creditor? Depending on your situation, it may make more sense to return the car to the dealership, and include the shortfall into your bankruptcy or consumer proposal.

How Can You Avoid Car Loan Debt?

If you’re looking for ways to avoid car loan debt altogether, we have some tips for you. One of the most important pieces of information is to ask how much the total value of the car is.

If I were to pay cash for this car, how much would it cost me?

Many people get blindsided by the affordable monthly payments and don’t necessarily calculate the amount they’re spending over the life of their loan. If you’re paying off a car with a six year loan, the interest may add up to you spending an additional $5,000 or even $10,000 on your car. Here are practical tips to keep in mind:

• keep your loan period as short as possible,
• save as big of a down payment as possible,
• if you get into trouble, get professional advice.

Resources mentioned in this show:

• Bankruptcy Trustee now Licensed Insolvency Trustee
• Financial Post article People Might Be Buying Too Much Car
• Joe Debtor study – Car Loan Rollovers Adding to Debt Load (pg. 20)
• 570 News: Ask The Experts

FULL TRANSCRIPT show #141 Doug Hoyes on Ask The Experts

Doug Hoyes: Today’s show and next week’s show will be a bit different. wiNormally I’m the host of this show and I interview a guest, but today I’m the guest. I’m going to play you the first half of an interview I did with Dave Callander on the Ask the Experts show, broadcast on May 6th on 570 News in Kitchener.

Dave asked me about how people get into debt problems with cars. I tell him some stories about how people end up owing a lot more on their car than it’s worth, and we talk about practical solutions to the problem of debt in cars.

But before Dave asked me about cars, it’s been a year or two since I was on Dave’s show, and in that time our profession changed its name. So Dave started the interview by asking me about that name change. So let’s pick up the show with Dave’s first question about why we changed our name.

Dave Callander: Before we get into the meat of today’s discussion, it’s been a while, as you say, since you’ve been on the show. Last time you were here I think I referred to you as a Bankruptcy Trustee, but now I hear you’ve gone and changed your name to Licensed Insolvency Trustee. What’s up with that change?

Doug Hoyes: Well so it wasn’t actually me who changed it. It was the federal government of Canada who implemented the change, as the government is want to do, on April 1st of 2017, April Fool’s Day. They decided that what we do is help people with their debt issues. And we don’t just do bankruptcy. And in fact, at Hoyes Michalos we do fewer bankruptcies than we do consumer proposals.

And so calling ourselves Bankruptcy Trustees kind of cuts out a big portion of what we do. So all trustees are now known as Licensed Insolvency Trustees, and there are two components to that, licensed meaning we are actually licensed by the federal government of Canada. There’s lots of people out there who say “Oh I can help you with your debts no problem. Give us a call, pay us some money, we’ll take care of it.” Well, they actually can’t.

We are the only ones who are able to use the force of law to help you deal with your debts. And insolvency of course is what we do. If you’ve got more debts than you can handle, then it’s a Licensed Insolvency Trustee that you need to deal with.

Dave Callander: Maybe you could tell us a little bit more about Hoyes Michalos, for folks who haven’t heard you on the show before.

Doug Hoyes: Well as I said, we help people with debt. So the typical person we deal with would have had a good job at some point in the past, they were able to get some credit and then something happened. Perhaps they lost their job, they got sick, they got downsized, maybe they’ve gone through a divorce; they used credit to survive, and now they’ve got a bunch of debt that they can’t handle. And it’s a worry, because if you get behind on your credit cards and your bank loans and your income taxes, you’re likely to have your wages garnisheed, you’re getting phone calls at work, bank accounts can get frozen, a whole lot of nasty stuff can happen.

So people come to us, and we work out either a consumer proposal or a bankruptcy. And a consumer proposal is quite simple; we make a deal with the people you owe money to. So a typical person we deal with might have 40, 50, $60 thousand dollars of what we call unsecured debts, so not car loans and mortgages – we’ll talk about those on today’s show – but things like credit cards, bank loans, payday loans, income taxes, and you’re way behind on them. We talk to the people you owe money to and work out a plan where perhaps you pay 20 cents, 30 cents, 40 cents on the dollar back, no more interest.

So it’s a win-win for everybody. The people you owe money to get more money than they’d get in a bankruptcy, and you don’t have to go bankrupt. And again, we’re Licensed Insolvency Trustees, which means this is all governed by federal law. No one else can do this unless they have a license from the federal government.

And all of our consultations are free. So there are no up-front fees. And the reason there are no up-front fees is it’s illegal for us to charge up-front fees. That’s one of the conditions of my government license. You come in, you talk to us for free and we explain your options, and then you decide from there what’s going to work for you.

Dave Callander: All right. Now as you mentioned on the show, we’ve often talked about things like credit card debt, unsecured debts; I don’t know if we’ve ever focused directly on vehicles. So let’s start with cars. Why do people get into debt problems with their cars?

Doug Hoyes: Well because we like driving new cars and we like driving new trucks, and unfortunately they’re getting more and more expensive. I mean I’m an old guy Dave, I won’t say how old I am but I remember when I started driving there was no such thing as, you know, CD players in the car let alone GPS’s and rear-view cameras and backup this and backup that. They’re getting much more expensive, and as a result very few people today pay cash when they go buy a car.

And again, if you’re listening to the show today, ask yourself that question; the car you’re driving now, did you pay cash for it? Well if it’s a thousand-dollar car perhaps you did, but it’s very rare to see someone driving a brand new car that they went in and paid cash for. They get a loan to buy the car, or they lease it. And you know, again, we used to pay cash for everything but then we started getting car loans, and now cars are getting more expensive.

And so it’s not uncommon for a car loan to last for as long as eight years now. And these long loans are great for car sales, but unfortunately it’s very expensive for consumers. I mean you probably don’t know this, but in Canada automakers are selling about 41% of the vehicles they sell now with loans of at least six years or leases of at least five years. So that means you get a car, you get a loan to buy a car, and you will probably be paying for it for five, six, seven, even as much as eight years. And that’s great for car sales. I mean they hit a record for the third straight year in 2016. But about 85% of cars are bought with debt, according to DesRosiers Automotive Consultants. So you think it through.

Vehicles depreciate over time, and you know, I mean you drive a car off the lot, it’s worth a chunk less the very first day you drive it off the lot. And longer-dated loans, so five years, six years, seven years significantly increase the chance that you’re going to end up owing more than your car is worth.

And we know from reports that the share of Canadians – here’s another fact – the share of Canadians trading in vehicles with negative equity rose to 30% in 2015. And on average they were underwater by about, oh just under $7,000 Canadian according to J.D. Power. So underwater means my car is worth $10,000, but there’s more than $10,000 owing on it. And you know these are serious problems that we’re seeing.

Dave Callander: Tell me a little bit more about the kind of people you meet who have problems with cars and debt.

Doug Hoyes: Well the typical person I see would be someone who, they went to the car dealer – and again, I’ll ask the listeners to think this through. So when you went and bought your last car, did you say to the car salesman ‘How much does this car cost?’ Or did you say ‘What’s my monthly payment going to be?’ We tend to buy cars based on the monthly payment not the total cost.

And it’s also very common, as I said, a big chunk of cars end up with a shortfall at the end of the loan or the lease, so you’re buying a car but you’re bringing in the debt from the previous vehicle. So my old car, it’s now three, four years old, I want to trade it in, but I’m short by $5,000 or $6,000 on the loan. No problem.

So we give you the new car and we take the $5,000 you owed from the old one and put it on the new one. So I’m buying a $30,000 car, but I end up with a $35,000 loan. And of course, the moment I drive the car off the lot it’s only worth $25,000, or whatever. So there’s a shortfall built into it right away.

When people come to see me because they end up having to file a consumer proposal or go bankrupt, it’s quite common to see a shortfall of $10,000 bucks. In fact, I almost don’t have to ask someone ‘Oh you’ve got a car? You’ve had it for a couple years? Well you’re probably short $10,000.’ And by the time we do all the math, it’s very common to see that number.

And so then you get someone who loses their job or gets sick or get divorced, they’ve got this car, they’re underwater on it, and so what do they do? Well they’ve got no choice at that point but to file a proposal or a bankruptcy.

That was the first part of my discussion with Dave Callander about car loan debt. You can keep your car and keep paying your car loan if you file a consumer proposal or go bankrupt, but if you have a significant shortfall it’s often better to just surrender the car and include the shortfall in your consumer proposal or your bankruptcy.

This is a bit of a confusing topic, so Dave and I got into more detail in the second part of the show, after the commercial break. Here’s the rest of our conversation.

Dave Callander: To start things off, we’re focusing on debt surrounding cars. We all have to have one for the most part. Everyone drives here and there. And most of us, as Doug pointed out, love the shiny brand new cars, and that’s kind of where we get into problems. So, just a recap for folks who may have joined the show, what is the main problem surrounding purchasing cars and debt?

Doug Hoyes: Well the main problem is the cost. So you’re buying a car, and obviously when you buy the car there’s taxes, a whole bunch of other charges included in it. So the moment you drive a new car off the lot it’s worth less than what you just paid for it. So you buy a $30,000 car, whatever the number is, you end up paying $35,000 by the time you get all the taxes and this and that in it.

If you wanted to sell that car the very next day, you can’t get $35,000 for it. You can’t even get $30,000 for it, because anybody else can go and buy that brand new car for that price. Maybe you’re lucky to get $25,000 for it. And of course I’m making up numbers; these are rough numbers, but the math is pretty daunting on it.

Now if you keep the car right to the end of the loan term then you’re fine. The loan’s paid off, it’s all good. But it’s very common for the car place to phone you up and say ‘Hey’… And in fact this happens to me all the time. I get a letter from the place I bought my car, and I drive a 2011 vehicle. So I’m not driving a brand new car. It’s many years old. But I still get a letter from them every, you know twice a year, saying ‘Hey, we’ve got this special trade-in deal’, you know ‘trade in your car, we’ll get you a new one.’

Now I don’t have a loan on my car. It’s old enough there’s nothing on it. But if you’ve got a car that’s two years old and it’s like ‘Oh, I can get the newest thing, the shiniest thing’, I trade it in and what happens? I’ve got a shortfall on it. So there’s $20,000 left on the loan but the car is only worth $15,000. No problem.

The dealer says ‘We’ll take that $5,000 shortfall and we will roll it into your new loan. Now we’re going to sell you a $40,000 car.’ That’s great; well your loan is $45,000. And if you do that once or twice; in other words if you do that every couple of years, you’ve always got a shortfall.

So you’re never in a position where you can say ‘You know what? I’d like to reduce my costs by turning in the car’. You can’t do it because there’s always this big shortfall. And if that’s your only debt that’s fine, but of course the people we deal with at Hoyes Michalos end up having a lot of other debts as well, and it just compounds the problem.

Dave Callander: So what is your advice then if we’re thinking about getting a car loan?

Doug Hoyes: Well number one, it’s more than just the monthly payment. So a common sales technique for a car loan company, the car dealer, would be to say ‘Well what can you afford?’ And if the answer is ‘Well I can afford $400 a month’, ‘No problem, we’re going to find something that is $400 a month. Now it might end up being an eight-year loan in order for you to be able to pay for it, but ‘No problem, we can find something that will get you into that’.

I’m much more interested in what is the total cost I’m paying. So why don’t you start with that question. When you’re buying a car, ask the dealer ‘If I was to pay cash right now, cash, cash on the barrel head, how much would it cost me?’ And that’s a much more relevant number than ‘How much am I going to be paying every month?’, because of course the monthly payment can be adjusted up or down based on how long it runs.

You also want to figure out how much you can actually afford. So can you actually afford $400 a month? Is that realistic? So it might not be a bad idea to spend a few minutes before trotting off to the car dealership to actually crunch the numbers. Do a budget, figure out what you can realistically afford.

And again, people get caught on this all the time. It’s not just a payment on a car. You’ve got to pay insurance. And if you’re a 22-year-old male then your insurance is going to be a massive number. You’ve also got to put gas in the car. You’ve got to do repairs and maintenance. If it’s a brand new car with a full warranty, okay your maintenance costs aren’t going to be that great. But if it’s a used car, well guess what, cars need tires, cars need oil changes. So factor in all those costs as well.

So I’m a big believer in keeping your loan payment as short as possible. If you can pay cash fantastic, but at the very least keep the loan payment as short as possible. And one way to do that is to have as big a down payment as possible.

If you get into trouble, then talk to a professional about it. So as you said at the top of the show Dave, we are, at Hoyes Michalos, Licensed Insolvency Trustees. We can help make deals with your creditors to deal with these kind of issues.

Now I want to be very specific here. A consumer proposal or a bankruptcy deals with your unsecured debt. So it deals with credit cards, bank loans, Payday loans, even income taxes are included in a consumer proposal. A secured debt like a car loan is not dealt with directly in a consumer proposal. And a secured debt is a debt that is attached to something. So there is a car attached to the debt, that’s a secured debt.

So if you were to file a consumer proposal you can keep your car. A lot of people don’t understand this. As long as you continue making the payments on the car you can keep the car, no problem. The decision you’ve got to make is, does that make sense.

So go back to the whole thought process about the shortfall. I’ve got a shortfall on the car of five or $10,000, does it make sense to keep the car, keep making the loan payments, knowing full well that I’m going to be paying $5,000 or $10,000 more than the car is worth over the life of the loan.

Your choice if you’re filing a proposal or a bankruptcy is to say either ‘I’m keeping the car and I’m going to keep making all the loan payments’, or right at the start of the proposal ‘I’m going to surrender the car. I’m going to say to the car dealer or the bank ‘Here you go, here are the keys, it’s your car now.’’ And if they take the car and sell it before the proposal is up and running, any shortfall is included in the proposal.

So you can actually eliminate that date in the proposal or the bankruptcy if you are willing to give up the car. And this is a very difficult decision for people because I need my car to get to work. I mean in the Kitchener-Waterloo, Cambridge, Guelph area here there is no subway. You can’t take a subway to work, so a lot of people drive. And I guess, you know, the LRT will eventually be built and we’ll all be taking that, but at the moment cars are the way most people travel.

And so it’s a very difficult decision to decide do I give up the car or not. You’ve got to really crunch the numbers, but you’ve also got to look at what your options are. And so if your friend, family member has an old couple of thousand dollar car that they can sell you, in a lot of cases you’re better off doing that than trying to hang on to a vehicle that’s just going to put you deeper and deeper into debt.

Dave Callander: I’m glad you pointed this out because again, I don’t think we’ve ever really dealt with this directly on the show before. I had no idea that you could return the vehicle and make that shortfall part of the consumer proposal.

Doug Hoyes: And this is why you want to talk to a Licensed Insolvency Trustee up front, because we understand the rules. And these rules have evolved over the years. If you go back you know 10, 15, 20 years, it was not the way I’m describing it today. It used to be – and there was one bank in particular that always did this – if you filed a bankruptcy they took your car, no questions asked, that was it.

The government changed the law a few years ago to say that a secured creditor cannot cancel a secured contract – in other words a car loan – if your payments are up to date. So if your payments are up to date on your car loan when you go bankrupt or when you file a consumer proposal you can keep the car, as long as you keep making the payments.

But, is that the correct answer for you? And in a lot of cases no it is not the correct answer to keep an older vehicle with a big shortfall, particularly if you’ve got a lease that has a mileage clause in it. ‘Well I know I’m already 20,000 clicks over the limit.’ Okay, so when you return that vehicle in a year you’re going to get hit with a big charge. So in a lot of cases it’s better to say ‘You know what? Give the vehicle back now, find something cheaper.’

And yes, if you’re going to finance another vehicle right at the start of a bankruptcy or proposal – it’s possible. There are certainly car dealers in town who will do it, and you call our office at 310-plan, we can tell you who will do that. But often the deal is the first year you end up paying a pretty high interest, you know, could be 25, 30%. So you don’t want to be getting much more than a $5 thousand car loan. It’s huge. It’s huge.

But in a lot of cases, after the first year, you’ve made all your payments, well now it becomes a, you know, 10 or 15% loan. And by the third year you can often get back down to a much more reasonable rate. So in a lot of cases the better answer is to make the tough decision, get the fresh start and surrender the vehicle. But it is up to you; that’s the point.

Dave Callander: But the folks at Hoyes Michalos can help you crunch the numbers and figure out what makes sense for you.

Doug Hoyes: Absolutely. And I always recommend bring your lease documents in with you. Bring your loan documents in. We can go through it and figure out if there’s some kind of weird accelerator clause, a mileage clause, a penalty for breaking a lease, whatever. So we can tell you.

And we also have access to the Black Book, so we can punch it into our computer and tell you how much your vehicle is likely worth today. You could also go back to your dealership and get an appraisal from them; ‘Hey, how much cash would you give me for it today?’ And then you know for sure what you’re dealing with.

I don’t like making decisions without proper information. I like to know exactly what I’m dealing with. And that’s what we emphasis at Hoyes Michalos; let’s help you get the proper information, educate you so that you can make the right decision for you and your family.

Dave Callander: My guest today on Ask the Experts. We’re speaking with Doug Hoyes of Hoyes Michalos, Licensed Insolvency Trustees, online at hoyes.com. That’s h-o-y-e-s-dot-com, or call 310-PLAN.

Doug Hoyes: That was my interview with Dave Callander on the Ask the Experts show on 570 News, where I gave my advice on how to deal with car loan debt. My advice, well it’s more than just about the monthly payment. Figure out what you can actually afford. Keep your loan payment as short as possible. Have as big a down payment as possible. And if you get into trouble, get professional advice. That’s what we’re here for.

There are two big things in life we borrow to purchase, cars and houses. We talked about cars today, and next week I’m going to play the second half of my interview with Dave where I talk about houses. Real estate is a big topic at the moment, so you won’t want to miss that discussion.

That’s our show for today. Full show notes and a complete transcript of today’s show are available at hoyes.com; that’s h-o-t-e-s-dot-com. That was our discussion about car debt, so until next week when we’ll discuss mortgages and real estate I’m Doug Hoyes. Thanks for listening. That was Debt Free in 30.

The post How Car Loans and Car Loan Rollovers Lead to Insolvency appeared first on Hoyes, Michalos & Associates Inc..