As Licensed Insolvency Trustees we are often contacted by people who have vehicle loans or leases but can no longer afford to maintain their ongoing payments. In BC there are laws under the Personal Property Security Act (“PPSA”) that can help consumers deal with a car loan that is no longer affordable.
Read on for an overview of the concept known as “seize or sue” in BC, debt management options that may allow you to keep your vehicle loan or lease and more.
What is Seize or Sue? How Does Seize or Sue Work in BC?
BC’s provincial laws that govern security interests in personal property are set out in the Personal Property Security Act, “seize or sue” describes a unique set of rules in BC (not all provinces will have seize or sue equivalents in place).
When it comes to vehicle loans, the BC seize or sue provisions apply if:
- You reside in BC;
- Your vehicle is used or acquired primarily for personal, family or household purposes;
- Your vehicle is registered in BC; and
- You have a loan under which the lender holds security in the form of a registered charge/lien against the vehicle.
What seize or sue means is that in the event you are unable to continue to pay or simply stop paying your vehicle loan, the creditor may take one of the following actions against you – but not both:
- Seize the vehicle per the lending agreement terms, ending any further payment obligations; or
- Sue you for the remaining balance, and you retain possession of the vehicle.
The lender must decide if they will seize the vehicle and sell it to try to recover the money they are owed, or if they will allow you to keep the vehicle and pursue you for the loan balance.
- If your vehicle is repossessed under the loan agreement’s terms your creditor may not ask you for further payments, or ask you to pay the difference on any shortfall (the difference between the loan’s balance and how much they are able to recover from the eventual sale of the vehicle).
- Where the vehicle’s value remains high compared to the loan’s balance, this may be the more likely option the secured creditor will take.
- If you have paid for 2/3 or more of the total amount owing the lender will be prohibited from seizing your vehicle unless otherwise permitted by a court order.
- If your creditor decides to allow you to keep the vehicle and obtain a judgment against you (i.e. sue you) for the loan’s balance, the creditor must discharge their lien/registered charge on the vehicle. This scenario is more common where the value of a vehicle is low or deteriorated.
- A creditor who has successfully obtained a judgment against you may proceed with extreme collection actions such as wage garnishments or seizure and sale of assets by a court bailiff.
Our experience is that if the vehicle is still of significant value compared to the amount outstanding on the loan, the creditor will often choose to seize the vehicle as they believe they will be able to get a good recovery of monies owed. If the vehicle value is quite low, creditors may choose to not seize the asset, but rather, could pursue the individual for full payment of the loan value outstanding and release their ability to seize the car for payment.
Exceptions to Seize or Sue Rules in BC
It’s important for consumers to understand that the seize or sue provisions apply only to loans and financing arrangements but do not apply to agreements that are “true leases”. If your leased vehicle is seized, the creditor will be able to demand payment on the shortfall of the vehicle’s lease.
Contract and financing agreements can be difficult to decipher – connect with a Licensed Insolvency Trustee or seek a legal opinion if you’re unsure whether you entered a true lease.
Voluntary Surrender of a Vehicle
Seize or sue provisions are generally only applicable in situations where your vehicle is seized by the secured creditor. Signing a voluntary surrender document may waive your rights to utilize the seize or sue laws and give your creditor recourse to collect on payments from you for the balance of any shortfall on the vehicle. We advise that you seek legal advice before signing any documents relating to the surrender of a vehicle.
Buyers’ Remorse Laws in BC
In general, there are no “buyer’s remorse” laws in BC that will allow you to return a newly purchased vehicle to a dealership. There may be some exceptions to this, such as:
- The dealership has a stated return policy;
- The vehicle did not meet the required minimum standards for road-worthiness at the time of purchase;
- There was a material misrepresentation about the vehicle;
- You are leasing a vehicle and you have not waived your right to the “one clear day” cooling-off period provided for in the Motor Dealer Act.
Steps for Vehicle Repossession
When it comes to vehicle seizure there are generally two different situations in which this will occur:
- You’ve defaulted under a security agreement like a loan or a lease agreement and the secured creditor is exercising their right to seize the vehicle; or
- A court bailiff is seizing an asset to be sold due to a successful order for seizure and sale granted to a judgment creditor (a creditor you owe who has obtained a court judgment against you).
The process for a creditor who holds a vehicle loan to repossess a vehicle may follow these steps, although some may differ depending on your creditor and their lending arrangement:
- Default Under a Security Agreement
The security agreement (i.e. loan) being in default (i.e. missing payments) is the first step. Some people who can no longer afford to make payments on their vehicle loan decide to stop making payments and advise the creditor that they will no longer make the payments (this can sometimes prompt the creditor to act faster in seizing the vehicle), or they may have already missed payments and defaulted on the agreement.
- Notice of Proposal to Take Collateral in Satisfaction of the Debt
After a default on the loan agreement if the creditor has decided to seize the vehicle (rather than relinquish their interest in it and instead sue for the balance) they may give notice that they propose to take the vehicle in satisfaction of the obligation secured by it (i.e. the debt).
The person in default would then have 15 days to object to the creditor’s proposal – failure to object is deemed to be a forfeit of rights and interests in the vehicle and entitles the secured creditor to retain the vehicle.
Ensure adequate insurance coverage on the vehicle is maintained while it is still in your possession and avoid wilful, reckless or negligent acts that may damage the vehicle. Doing so may disqualify you from seize or rules in BC.
- Bailiff Picks Up the Vehicle
A licensed bailiff typically collects property being seized on behalf of the secured creditor.
Be sure to remove license plates and any personal items from the vehicle when your car is repossessed (or surrendered). You will not be able to cancel the insurance without the license plates and could therefore be responsible for paying insurance premiums until the vehicle is re-sold.
- Notice of Disposition
No less than 20 days before the disposition of the vehicle, the secured creditor gives a notice of disposition containing details of the seizure and upcoming disposition including the balance in arrears, the amount required to satisfy the debt secured, the date, time or place to offer closed tenders of any public auction sale.
If you’re able to pay the arrears owed, costs of repossessing the vehicle, and sometimes additional funds due under an acceleration clause you may reinstate your security agreement and resume making payments under your original loan agreement.
- Vehicle is Re-Sold
The creditor may dispose of the vehicle a few different ways, including by private sale, public sale or auction, or by lease.
Credit Rating Impact of Vehicle Repossession
If your vehicle is repossessed, a notation will be made on your credit history report and may be reflected for up to seven years. A balance for a shortfall remaining from a vehicle lease may also be noted on your credit history.
Other Debts and Liens on Your Car
Not all vehicle liens are due to purchasing a new vehicle. Other common debts may result in a creditor holding a lien on your vehicle that you may have previously owned free and clear, such as:
- Debt Consolidation Loans: Many banks will require you to pledge an asset as collateral in order to obtain a consolidation loan, effectively making the bank a secured creditor by giving them a means to recuperate their money in the event you are unable to pay.
- Mechanic Liens: The Repairers Lien Act allows unpaid mechanics to hold a charge on a vehicle they have repaired for the total costs of the repairs.
- If in possession of the vehicle for 90 days, and unpaid, the mechanic may be entitled to sell the vehicle.
- Where possession of the vehicle has been released by the mechanic, they may register a lien within 21 days.
You can search for liens registered on a BC vehicle online – it’s especially important to check for liens on a used vehicle you may be considering purchasing.
Vehicle Loans or Leases in a Consumer Proposal or Personal Bankruptcy
Many people have difficulty managing their vehicle payments due to other debts such as credit cards. Consolidating debts by making a Consumer Proposal to your creditors, or even filing a personal bankruptcy can effectively reduce your debts down to what you can afford to repay and result in the remaining debts being written-off and forgiven by your creditors. Often consumers find that once they are no longer juggling so many debts, they are then able to maintain their vehicle payments.
The start of a Consumer Proposal or bankruptcy can be a good time to evaluate whether you want to continue with a vehicle loan or lease.
What Does “Secured” Debt Mean? Mortgage or vehicle financing lenders hold an asset as collateral (i.e. your home, your vehicle, sometimes even household goods) against your debt. This means they are “secured creditors” and these debts are treated differently than “unsecured” debts such as a credit card debts.
What happens to my vehicle loan or lease if I file a Consumer Proposal or personal bankruptcy?
When it comes to dealing with secured creditors you will generally have a choice on how to manage those debts when making a Consumer Proposal or filing personal bankruptcy.
- If your accounts are still in good standing and you want to keep the vehicle and continue with the loan or lease in place you can do so, and the Consumer Proposal or bankruptcy will not typically impact those agreements.
- If you don’t want to keep the asset or carry on with the loan or lease, you have the option of surrendering the asset to the secured creditor, thereby ending any ongoing commitments.
- Because vehicle values depreciate quickly, if you have used your vehicle as collateral on a consolidation loan, your car may now be worth substantially less than what you owe the bank for the loan on it. This may be worth considering when you decide whether to keep your vehicle loan.
- If there is a shortfall owing from a lease this can be written-off as part of the Consumer Proposal or bankruptcy.
Dealing with unmanageable debts can feel overwhelming, a Licensed Insolvency Trustee can explain your options and help you evaluate your debt solutions so you can decide how to move forward.
Book your confidential free debt consultation with a local debt expert from Sands & Associates today. Since 1990 we’ve helped thousands of BC consumers get a financial fresh start.
This content is not intended to be specific legal advice; it is intended to be a simple guide in layman’s language to provide a basic overview only. E. Sands & Associates Inc accepts no responsibility for its use other than as intended. The law is an ever-changing body of statutes and decisions, and the reader is advised to seek legal counsel for specific matters relating to their situation.