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What happens to my Car if I go Bankrupt?
Money Advice, Debt Advice & Debt Help

What happens to my Car if I go Bankrupt?

What happens to my Car if I go Bankrupt?

You are normally allowed to keep your car if you go Bankrupt. However it usually has to be worth £1000 or less.

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Can you keep your Car if you go Bankrupt?

Given you need your car (e.g. to get to work, take your children to school or other family commitments) and it is worth £1000 or less, you should be allowed to keep it if you go bankrupt.

The only time such a vehicle might be at risk is if you really do not have a reasonable requirement for it. This could be because you walk or use public transport for your daily travel needs and just own it for pleasure.

If the Official Receiver (OR) believes you do not need it they will ask you to sell it. The money from the sale must be given to them. Also as you no longer have to pay the running costs you may then be able to make payments towards your debts.

Even if your car is worth less than £1000 the OR is likely to ask you to sell it if they believe you do not need it and you cannot justify keeping it.

What if your vehicle is worth more than £1000?

The Official Receiver will need to understand how much your car is worth. If the value is less than £1000 (£2000 In Northern Ireland and £3000 in Scotland) you will be allowed to keep it as long as you need it.

However where the value is more than £1000 the OR must realise the difference. They will normally suggest you sell the vehicle and buy an alternative worth less than £1000. The money left over will then have to be given to them.

Alternatively you will be allowed to keep the vehicle if you know a third party who is able to pay the difference in cash to the OR.

There are some situations where you will be allowed to keep your car if it is worth more than £1000. These include where it is a tool of your trade or you have a particular medical requirement.

Could you sell your Car before going Bankrupt?

If your car is worth more than £1000 one option is to sell it before going Bankrupt. You can then use up to £1000 of the cash you raise to buy something cheaper.

You are allowed to use the remaining money to pay your Bankruptcy fee and reasonable ongoing living expenses. However anything left over will have to be given to OR.

You must ensure that you get market value. Keep any receipt you receive. If you sell the car for less than what it is worth this would be a transaction at undervalue. The OR could then recover it and sell it for a more realistic price.

Do not pay any of your creditors with funds raised from the sale of your car. This would be a preferential payment. Once you are bankrupt the recipient could then be forced to return the money you paid them.

What happens if your car is on finance?

If your vehicle is on finance such as Hire Purchase (HP) or PCP (lease agreement) you must consider its net value. To calculate this take the actual value and deduct the outstanding finance.

If the net value is less than £1000 then you should be allowed to keep it as long as the monthly repayments are reasonable. If they are high the OR could still ask you to hand back the car to the finance company and get a cheaper one.

You must also speak to your finance company and confirm they would be happy to let you carry on with the agreement during your bankruptcy. Most will be fine as long as their payments are maintained. However some may not.

If you receive Mobility benefit and have a car through the Mobility scheme you can keep this. Mobility benefit and an associated vehicle are exempt if you go bankrupt.

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26 thoughts on “What happens to my Car if I go Bankrupt?

  1. Neil says:

    How do I get a fair valuation for my car for bankruptcy purposes and how can I go about keeping it. We buy any car value it at £2500 and Parker’s value it at £3800 which is a huge difference. My children are willing to pay the reciever the difference over £1000 but we need to know how to come to a true valuation fair to both sides that is a realistic value

    1. Hi Neil

      Generally speaking Parkers / Auto Trader give a valuation which is top end. Vary rarely are these valuations achieved if you do try to sell, so for the purposes of bankruptcy this is unrealistic. Ultimately if the official receiver had to sell the car the price they would achieve at an auction would be closer to the WBAC.com value.

      Remember the quote from WBAC.com is the top end of what they would give you if you actually tried to sell your car to them. The OR would likely achieve less at an auction and incur auction costs. So in my experience the official receiver will normally be happy with the WBAC.com figure. As such if your car is worth £2500 I would say you can be fairly confident the OR will accept c£1500 for you to keep it after you go bankrupt.

  2. Dave says:

    Hi

    I’m considering bankruptcy as I am unfortunately unable to pay my credit cards and loans and a couple of things I have taken out my question is my wife and I are on our car finance agreement would the car have to be handed back

    1. Hi Dave

      The answer to this depends on a number of things. First is the car in negative equity? ie is the total outstanding finance greater than the value of the car. If so and the monthly payments are reasonable the official received will have no interest in it and as far as they are concerned you will be able to keep it.

      However you would also have to check with the car finance company to ensure they would still allow you to keep the agreement running (given of course you maintain the payments).

      Most car finance companies are happy as long as the payments are made on time. However some simply demand the return of the car. If this is the case then you have the option of handing it back prior to going bankrupt and getting an alternative. Any outstanding finance after the car is returned is included as a debt in the bankruptcy.

  3. Tricia says:

    I have a Mitsubishi Colt worth around £1200, but I need the vehicle as I have arthritis and I live with my friend who has cancer and a stoma, so we need the vehicle to attend appointments and such. She doesn’t and can’t use public transport, I am her registered career and she is unable to drive, if I declare bankruptcy will I lose my car?

    1. Hi Tricia

      Although the rules state that your car should be worth no more than £1000, the official receiver can use discretion in certain situations. In particular where there is a need for a vehicle due to a medical condition. As such even if you car is worth £1200 I do not think you have anything to worry about. I am confident you would be able to keep it if you go bankrupt.

      Also remember you should check the value on webuyanycar.com You can then take off a couple of hundred pounds from the value they give you for the inevitable knock downs they would come up with. Using this method you might find that the value of your Mitsubishi is actually less than you think anyway.

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