If you are feeling STUCK in a bad car loan that you either cannot afford or wish you never got into because you are backwards in the loan, then there may be an EASY SOLUTION to help you get OUT of a bad car loan!

The good news is that we have Seize or Sue rules in British Columbia. BC has very “consumer friendly” rules about secured loans for consumer items such as cars and trucks (and RV’s, Motorcycle’s etc). These rules are under the PPSA Personal Property Security Act. Find them online here

Seize or Sue basically means:  if you STOP making the payments on your car loan, and if the creditors choose to seize your car for non-payment, then the Bank cannot usually go after you for the short fall on the loan!

Here’s how it works:

When you purchase something, the lender (the bank, etc.) usually has you sign a specific agreement called a Security Agreement. This agreement says that you give the lender a “secured interest” in the goods (your car or other item you are buying) as security for the loan (what you owe).

This is somewhat similar to a bank loan for a house – also known as a mortgage. A mortgage is a secured loan for a house.

If you don’t pay the mortgage payments on your house, you will likely lose the house – this is called foreclosure. Similarly, with “secured loans”, if you do not make your payments you will likely lose the item you purchased, as the lender has the right to take the item away from a non-paying customer.

HERE IS WHERE IT GETS INTERESTING IN BC: In BC, the lenders have to make a hard choice; they have to decide if they want to SEIZE the item or SUE the customer hence “SEIZE OR SUE”. They cannot do both. In other words, they cannot take the item it AND collect on the loan: they must pick one or the other.

So, if the lender takes away the item (this is called a “non-voluntary” surrender), then that is all the lender can usually do. Once they have taken away the goods/item from the customer, they cannot go after the customer any longer for payments or for the loan shortfall (the money they are short if the item/good is worth less than the loan pay out).

If the lender decides to NOT collect the goods then they can sue the customer for the loan and try to collect on the loan by way of Court ordered collection practices, such as wage garnishments etc. But, this is a risky step for a lender to take, as once they sue the client they will need to allow the consumer to keep the goods without a loan. SO if the car is worth a lot of money (relative to the loan), it is generally smarter for the bank to collect the item (such as car) instead of suing the customer for the loan. If the car is very old and beaten up and close to worthless then it may be smarter for the lender to decide to allow the client to keep the car (or other item) and instead SUE them for the loan.

Important things to note:

If the Bank Sues: If the bank decides to sue you instead of taking the vehicle, then you can contact us for help. We can help create a plan which would STOP the bank from suing you.  A carefully structured consumer proposal filed with a Bankruptcy Trustee gives you a “Stay of Proceedings” which can stop any court proceeding or obtaining a garnishment order. See below for our contact info or read more about proposals here

Bank Collector vs. Bailiff: If the bank collectors call you and they are simply asking for a payment, talk to them and let them know your intent is to not pay the debt and that you will give the car up if they send someone to repossess it. After a few weeks or a few months of nonpayment, the bank will likely send in a Bailiff to seize the car. We recommend cooperating with the Bailiffs and returning their phone calls. They are simply working for the bank to pick up the car, so help them do so by calling them back and making arrangements to meet them and allow them to take the car. Make sure to take all your personal belongings out of the car as soon as you stop making the loan payments.

Insurance and Licence Plates: Make sure to keep auto insurance on your vehicle until after it is repossessed. Also, ask the Bailiff who takes your car to give you a chance to take off your Licence Plates so you can turn them in to ICBC to get your deposit back and finally cancel your insurance.  Also ensure you obtain a copy of the repossession notice from the Bailiff.

Allowing the Bank to Seize: This is HARD on your credit – when the lender/bank Seizes an item they generally will mark an R8 on your credit. This is very hard on your credit and it will stay on your credit for 6-7 years (*Equifax). It may make it difficult to get another secured loan, or it may cause the loan interest rate to be higher. However, if this does happen and you need help, we can help you REPAIR your credit afterwards. Reach out to us for credit repair advice.

Important Considerations:

This may seem like a simple and easy way for a person to get out of paying a car loan, but be aware: there are complications and problems that can arise, such as how the vehicle was surrendered, where the vehicle was originally purchased, or whether the vehicle has a loan or a lease on it.

HOW THE VEHICLE WAS SEIZED: If, for example, the client turns in the vehicle voluntarily, this could be viewed as Voluntary Surrender and may not be considered “seized” as defined under the BC Personal Property and Security Act, which you can find online here

IF the car is not “seized” and is instead given back – then these rules would likely not apply and the bank could sue you for the difference of the loan amount, less what they collect off of the car when the lender auctioned it off for sale. (Example: If the car loan equals $30,000, and the car is turned in and sold at an auction by the bank for $20,000, then the loan is therefore $10,000 unpaid – this is a shortfall and the bank can sue the client for $10,000.)

If the Loan is More than Two Thirds Paid: In BC, if a consumer has paid more than two thirds of the original loan balance, then the lender cannot seize the goods. This does not include Mortgages.

Leases vs. Loans: These rules do NOT apply for leases. So, be sure to check if your car purchase was a LOAN or a LEASE before considering how to best exit the loan and every situation is different and seeking professional advice prior to deciding how to proceed is always recommended.

If You Bought the Car Outside of BC: These rules only apply for individual consumer purchases and do NOT apply for businesses taking loans for secured items. Also, the loan must be taken in BC for these rules to apply. So watch out – did you buy the car in Ontario before moving to BC – which set of rules then applies? You may need to check with your lawyer on this.

*Remember: The banks we use are mostly based in Eastern Canada, where these rules do not apply. So, we have seen cases where a client has their car seized and the bank still sends them a bill for the loan shortfall. In these cases the client has simply reminded the bank that the rules in BC are Seize or Sue and the bank has then left them alone.

GET PROFESSIONAL ADVICE! Never attempt this on your own! There are so many small variables and factors that can change how these rules work and therefore change the outcome. You can work with a professional Debt Advisor such as 4 Pillars or others and a local lawyer to help you through this process. We have helped thousands of people through this process successfully and can help you – here is our contact info below. Please reach out to us if you are thinking of getting rid of a bad car loan, or if the bank is suing you for non-payment of a loan, or if you have any other debts or debt problems. We have helped thousands of clients deal with their bad debts, rebuild their credit and get their financial life back on track. Reach out to us for a free consultation at:

Benjy Houser

4Pillars Victoria

Unit 103 – 2311 Watkiss Way, Victoria, BC

Office: 250 882 5556

Email: admin.bh@4pillars.ca

Web:    https://www.4pillarsvictoria.ca

Web 2: www.DebtVictoria.com

Legal Disclaimer – this is NOT legal advice, we are not lawyers, this is simply our summary of how these rules affect people in general. Laws should only be interpreted by a lawyer and we recommend that you seek the advice of a lawyer before deciding to try to have an item Seized by a creditor or for any other questions regarding/understanding laws. We also advise that a consumer seek the help of a Debt Relief Specialist such as ourselves or other professionals in the Debt Service industry. Read more about the rules here