Let’s say you buy a car for personal use and finance it through the dealership.
You agree to put the car up as security. A few months down the line, you find you can’t keep up with the payments.
You have images of waking up one morning to find the car gone and worry about being sued if the sale price doesn’t cover the debt.
But what’s the reality?
A car purchased primarily for personal use is an example of a “consumer good.”
In B.C., the Personal Property Security Act provides protection in situations where a borrower puts up consumer goods as security for a loan or other type of credit, then defaults.
Consumer goods are those that are used or acquired primarily for personal, family or household purposes. (This article does not cover situations where other types of goods or land are put up as security.)
In general, the creditor can repossess the car, without a court order, and sell it to recover their money, or the creditor can sue you in court for the whole amount owing.
They cannot do both and it is the creditor’s choice which option to exercise – this is called the seize or sue rule.
One exception to this is the two thirds rule. If you have re-paid at least two thirds of the amount you borrowed, the creditor cannot repossess the car without a court order.
If the creditor has repossessed the car, you are entitled to get it back if you catch up on your payments and pay any reasonable expenses the creditor incurred in seizing the car.
Before selling the car, the creditor must give you 20 days written notice to give you the opportunity to do this.
There may be some exceptions to the above rules.
If you have defaulted on your car payments, it’s worth bringing the original agreement to a lawyer to have a look at.
Two sources of inexpensive or free legal advice are Access Pro Bono (free half-hour appointment with a lawyer for financially eligible individuals) 1-877-762-664 and Lawyer Referral Service (half-hour appointment with a lawyer for $25 + tax) 1-800-663-1919.
Amy Taylor is Coordinator of the Kootenay Boundary Credit Clinic, a project of Castlegar & District Community Services Society. The Clinic provides free information and workshops about issues related to money management, credit and debt. Call 1-877-565-0013 or go to www.kbcredit.org for more information.