If I go bankrupt what happens to my car and other vehicles?

19 October 2010
James Falla (about the author)

If you are not a homeowner, bankruptcy is becoming far more acceptable as a solution for dealing with a personal debt problem. We consider what will happen to your car or other vehicles if you declare yourself bankrupt.

If you declare bankruptcy, all of your unsecured debts will be taken away from you and you will no longer be responsible for paying them.

After 12 months you will be released from your bankruptcy and any outstanding unsecured debt will be written off.

Bankruptcy however does not mean that you will pay nothing back at all. If you have any valuable assets, you may have to sell these to raise cash for your creditors.

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Reasonable assets

You will generally be able to keep all of your reasonable household possessions. These include your washing machine, fridge freezer, TV, Stereo, Computer and furniture etc.

However one of the items that is closely considered by the court in bankruptcy is your car or other vehicles.

Owning a car, motorbike or other vehicle when you are bankrupt is acceptable if you need it for reasonable transportation purposes such as getting to and from work and other family commitments. However, the value of the vehicle must generally be £1500 or less.

Vehicles worth more than £1500

If your vehicle is worth more than £1500, the official receiver is likely to ask you to sell it.

You can use up to £1500 of the sale proceeds to buy an alternative but any surplus must be put towards repaying your debt.

If you want to keep a vehicle which is worth more than £1500, this may be possible. But a third party (perhaps a member of your family or friend) will have to pay over the difference in value to the court in the same way as if the vehicle had been sold.

In bankruptcy, the only time when you will be able to keep a car or other vehicle which is worth more than £1500 with no strings attached is if it is specifically needed for the job that you do and can therefore be described as a tool of your trade.

For example if you own a work van or you are a taxi driver and need a more expensive car for your business, keeping your vehicle after declaring bankruptcy will normally be acceptable.

Vehicles on finance

If your vehicle is on finance, the official receiver will normally be happy for you to keep it and continue to pay the finance agreement as long as the equity in the vehicle is less than £1500 and the monthly payments are reasonable.
 
Vehicle equity is calculated by taking the current market value of the vehicle and deducting the total of the finance outstanding.

However, you need to remember that the finance company will be informed once you have declared bankruptcy.

Some vehicle HP and lease agreements state that a car can be repossessed if you declare yourself insolvent. As such, it is a good idea to confirm with company that they will be happy to continue with finance agreement once you are bankrupt.

Take expert advice

Declaring bankruptcy can be an extremely good way of dealing with an unsecured debt problem. After 12 months you will be discharged and your debts written off.

However, you need to consider a number of things very carefully and take expert advice. One of these is where your car is concerned.

In general, you will be allowed to keep a vehicle worth up to £1500. However, if you own a vehicle worth more than £1500, you will need to plan how to deal with this before going down the bankruptcy route.