Car and Bankruptcy
Your car may be protected if you go Bankrupt. However the standard rule is that its value must be no more than £1000.
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- Find out if you will be able to keep your car
- Options if your car is worth more than £1000
- Can you sell the vehicle before going Bankrupt?
- What if your car is on finance
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Can you keep your Car if you go Bankrupt?
Your car is not automatically sold if you go Bankrupt. You will be able to keep it if certain criteria are met. The first is that its value must not be more than £1000 (£3000 in Scotland).
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.
If your car is worth more than £1000 or you do not need it then the Official Receiver (OR) will ask you to sell it.
If you do not need your car you will be asked to sell it even if it is worth less than £1000. The associated running costs would then also stop. As such your ability to make payments towards your debts may increase.
What are your options if your Car is worth more than £1000?
If your car is worth more than £1000 you do have some options. The OR does not want to sell the vehicle for the sake of it. They simply need to realise any value in it over £1000.
You do have the option of simply selling the vehicle. You can use the proceeds to buy a replacement worth up to £1000. The rest must be handed over.
Alternatively you will normally be allowed to keep it if a third party can pay the difference between its value and £1000. However you cannot do this with your own cash.
Some vehicles are exempt from bankruptcy even if they are worth over £1000. This is the case if you are self employed and your vehicle is a tool of your trade. Also if you have a physical disability and require a car for mobility.
Can you sell your Car before going Bankrupt?
If your car is worth more than £1000 you could sell it before going bankrupt. The advantage of this is that you remain in control of the cash you make from the sale.
You can use up to £1000 of the proceeds to buy a new vehicle which you will then be able to keep once bankrupt. Any spare money could then be used to pay for the cost of your bankruptcy.
If you have any cash left over you must be prepared to hand it over to the Official Receiver unless you need it for any other legitimate living expenses. It is important that you sell for a fair market price. This will be checked by the Official Receiver.
You must not use any of the spare cash raised from the sale to pay off a debt. This would be a preferential payment. The person you pay the money to could be forced to return it once you are bankrupt.
What happens if your Car is on Finance when you go Bankrupt?
If you have a car on HP or 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.
The Official Receiver will also have to agree to the finance payments you make. If they are deemed excessive based on your circumstances you could still be asked to return the vehicle to the finance company.
Bankruptcy can help if you have a car on finance you no longer want or can afford. You can stop making your payments and allow the finance company to repossess the vehicle. Any shortfall after the the vehicle is sold is written off once you go Bankrupt.
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