It can be a real juggling act affording a car. Insurance and loan payments are the cost of just owning a car. On top of that there’s seemingly ever-increasing gas prices and repairs that cost and arm and a leg you have to pay just to drive the car.
Keeping on top of any auto finance issues becomes harder if you have debt. With a variety of different financial obligations that demand your attention and resources it can be easy to fall behind.
There is a way to remove a large portion of your debt and replace your car with a cheaper alternative though. Using a consumer proposal can reduce your debt and help you get a cheaper car. Let’s look at how it works.
If you’ve never heard of a consumer proposal, and unfortunately many haven’t, it’s a way to reduce your unsecured debt by having a Licensed Insolvency Trustee negotiate with your creditors on your behalf.
Unsecured debt includes debt from:
The Trustee assesses your debt situation and then offers a proposal to your creditors for you to pay back a reduced amount of money rather than the full amount. For a consumer proposal to be accepted, it needs to be approved by a majority of your creditors, representing at least 50% of the total dollar value of your debt.
A proposal can reduce your debt by up to 80%. This means if you had $1,000 of debt you could now owe as little as $200 after filing a proposal.
A consumer proposal isn’t something you can do yourself. You have to speak to a Licensed Insolvency Trustee who is the only person legally allowed to file one on your behalf.
Consumer proposals don’t cover secured debt, which is debt backed by an asset. Your car is an example of a secured debt because it can be repossessed from you.
Still there is a way for a consumer proposal to help you lower the debt from your current car and get better financing on a different car.
Learn how a consumer proposal can reduce your debt by up to 80%.Learn all about consumer proposals
If you have a car that is costing you too much and other debts, there is a way for a consumer proposal to help lower them all.
Your car debt itself cannot be included in a consumer proposal while you keep it. However, if you sell your car back to the dealership, the dealership will put what they pay you for the car towards your outstanding car debt.
The remainder then can be included in proposal.
If that sounds complicated imagine you have a car you owe $10,000 on and you sell it to the dealership for $6,000.
The remaining $4,000 can be included in your proposal and that number will be reduced as part of the proposal.
This frees up money for you to look for a vehicle that costs you less than your current car. Selling your car also helps reduce the impact on your credit score by avoiding a repossession.
A Licensed Insolvency Trustee like BDO’s Francois Gilbert can actually help clients find dealerships that can welcome people looking for this arrangement.
“We make the connection between the person who comes to see us for help and the dealership. Sometimes the dealership will have someone who comes in and needs help affording a car and they send them to us, so it works both ways.”
For those looking for this arrangement agreeing to sign the consumer proposal is the key.
“In order to get the new car, they first have to agree to file a proposal, then they go back to the dealership and they say ‘I’m filing a consumer proposal and my current car’s debt will be included in it after I sell it to you,’ then they can get better financing on a different vehicle.”
For those pursuing this route only used cars are an option.
“You don’t get to walk away with something worth $40 grand,” says Francois, “what you can get is a used car that’s comparable to the car that you already have at a better cost.”
This scenario doesn’t work for everyone though.
“The newer car may cost less overall but because you’re filing a proposal there can be higher interest rates that some people just can’t afford to pay,” Francois notes.
Before you sell your current car to the dealership you can find out what the cost of a used car and its financing terms would be. The dealership will show you what options of cars you have and explain the terms you would have to agree to before you sell them your current vehicle.
Sometimes it works and sometimes it doesn’t.
“The person can judge for themselves if selling their vehicle and getting a different one is a good deal for them or if it’s better to stick with what they already have, no one has to sell if they don’t want to,” says Francois.
Once you have bought a new car that costs less than the old one and begin making payments on time, your credit score will begin to recover.
“By taking this route of getting a new car as part of the consumer proposal process, they can begin to rebuild their credit by paying for it,” Francois says.
The process of rebuilding credit is a long one but with a cheaper car it’s easier to keep on top of payments.
Only a Licensed Insolvency Trustee can advise you if this is a viable strategy for your situation. Licenced Insolvency Trustees are professionals who specialize in helping people who are facing financial difficulties.
They help people navigate through complex insolvency proceedings, such as filing for bankruptcy or a consumer proposal. Trustees are also help educate those they help about their rights under the Bankruptcy and Insolvency Act, and help develop a plan to repay debts, and offer guidance on how someone can rebuild their financial stability and credit.
The first consultation with one of BDO’s Licensed Insolvency Trustees is free and often takes under an hour.
If you’re struggling with debt and looking for solutions our Trustees lay out every option available for your situation and explain what each means.