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Can you keep your car if you go Bankrupt

Can you keep your car if you go Bankrupt

Whether or not you can keep your car if you go bankrupt will depend on how much it is worth. As standard it will be safe if it is worth less than £2000 and you need it for work. However there are exceptions. 

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Want to know if you can keep your car if you go bankrupt? Give us a call (0800 044 3194) or complete the form below

Is your car at risk if you go Bankrupt?

Your car is not automatically at risk if you go Bankrupt. You will be able to keep it if certain criteria are met. The first is that its value must be no more than £2000. This amount was increased from £1000 in October 2021.

Next, you must have a reasonable need for it. Most commonly you may need it to get to work. You can justify this if there is no alternative transport at the time you need to travel. You may also require it for family reasons perhaps to transport your children.

In certain circumstances you can keep your vehicle even if it is worth more than the allowed amount. For example if you have a works van that you need to carry out your business, you should be able to keep it as long as it is not of excessive value. Alternatively you may get an exemption because have a physical disability and require mobility.

If your car is worth more than £2000 and is not exempt for other reasons, you may have to give it up and get a cheaper one.

Options if your Car is worth more than £2000

If your car is worth more, it does not have to be sold simply for the sake of it. The value it it simply has to be realised. This means you do have some options. 

First you will be able to keep it if a third party can pay the difference between its value and an allowable amount of £1250. Your own cash can’t be used for this. It has tom come form someone else, perhaps a family member or friend. 

Alternatively you can allow the vehicle to be sold. You will be given up to £1250 from the proceeds to buy a cheaper alternative. The Official Receiver will keep the rest.

You will not necessarily be forced to sell a more valuable car if you go bankrupt. However, its value over £1250 would have to be paid to the Official Receiver.

What happens if your Car is on Finance?

If you have a car finance you need to plan carefully before you go bankrupt. First you will need to contact the finance company and find out how they will react.

Some finance companies will allow you to keep paying the agreement after you are Bankrupt. Others will want to automatically terminate and repossess the vehicle. If they are happy you must include the payments in your living expenses budget.

You must also check that the net value of the car (the 2nd hand value less the outstanding finance) is £2000 or less. Where this is the case the Official Receiver will allow you to keep it. If it is worth more you may still have to sell it, pay off the finance and get a cheaper one.

You may no longer want the car you have on finance. If this is the case you can stop making your payments and hand it back to the finance company. Any shortfall debt is written off in your bankruptcy.

Can you sell your vehicle before going Bankrupt?

Selling your car before going bankrupt is allowed. The advantage is you remain in control of the cash you make from the sale.

You can use up to £2000 of the proceeds to buy a replacement vehicle. You will be able to keep this once you are bankrupt. Any additional spare cash can be used to service and MOT your new car and pay for insurance. You can also use it to fund reasonable living expenses and to pay for your bankruptcy application.

However anything else left over will have to be paid to the Official Receiver. You must not use any to pay off friends and family debt. This would be a preferential payment. The person you have paid off could be forced to return the funds once you are bankrupt.

It is important that you sell for a fair market price. This will be checked by the Official Receiver. If you have undersold your vehicle, the new owner may have to return it.

For more advice on bankruptcy and your car, give us a call (0800 044 3194) or complete the form below.

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James Falla
I have been advising people on how to solve their debt problems for over 20 years. During this time I have helped many people go bankrupt. I am an FCA Approved Person and the Managing Director of Wilmott Turner Financial Services (owner and operator of Bankruptcy Expert
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