If I go bankrupt what happens to my car and other vehicles?
19 October 2010
By 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.
This of course sounds good but a worry that you will have is what happens to your belongings and in particular your car if you go bankrupt.
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What happens to my car in bankruptcy
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 £1000 or less.If your vehicle is worth more than £1000 the official receiver is likely to ask you for the difference in the vehicles value and £1000.
You can then sell the car and use the proceeds to buy an alternative up to the value of £1000 but any surplus must then be paid to the OR.
If your vehicle is worth more than £1000 and you want to keep it 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 £1000 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 this higher valued 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 £1000 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 before you go bankrupt it is a good idea to confirm with company that they will be happy to allow you to continue with the finance agreement if you are declared bankrupt.
If they say no then at least you know where you will stand and can consider alternative solutions.
Take bankruptcy 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 £1000 if you need it. However, if you own a vehicle worth more than £1000 you will need to plan how to deal with this before going down the bankruptcy route.
Arrange a call with a Bankruptcy Expert