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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 £1000.
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 £1000. For example if you need it to carry out your business or if you have a physical disability and require a car for mobility.
If your car is worth more than £1000 and is not exempt for other reasons the Official Receiver (OR) must realise the difference.
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.
First you have the option of keeping your vehicle if a third party can pay the difference between its value and £1000. However you cannot do this with your own cash.
Alternatively you can allow the vehicle to be sold. You will be given up to £1000 from the proceeds to buy a cheaper alternative. The Official Receiver will keep the rest.
If your car is worth more than £1000 you will be able to keep it if you can pay the difference to the OR.
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 £1000 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?
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.