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What happens to my Car if I go Bankrupt?

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 £2000 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 £2000 or less, you should be allowed to keep it if you go bankrupt.

The car value allowance was increased from £1000 in October 2021.

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 £2000?

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

However where the value is more than this, the OR must realise the difference. They will normally require you to sell the vehicle and buy an alternative worth £1250 or less. 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 £2000. 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 £2000 one option is to sell it before going Bankrupt. You can then use up to £2000 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 £2000 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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    42 thoughts on “What happens to my Car if I go Bankrupt?

    1. Marios P says:

      I need a car to work and also to support my terminally ill disabled father. I saw that the value of £1,000 is mentioned above as the max value my car can be. My concern with this is that would only get a very old, high mileage and likely, unreliable car.

      1. James Falla says:

        Hi Marios

        When assessing the value of your car, the rule followed by the official receiver is first and foremost whether the vehicle is required for your employment (and there is no reasonable alternative means of transportation). If you also need the car to care for a sick or elderly relative this should also be taken into consideration. As such if your current vehicle is worth £1000 or less you would certainly be able to keep it on these grounds.

        However, if the vehicle is worth more, the OR then has to consider whether you could reasonably replace it for a cheaper version and give them the difference. This by its nature tends to be a subjective decision.

        If your car is worth say £2500, you may be able to convince the OR that you need to keep it on the grounds of reliability. However, this can’t be guaranteed. As such, if you decide to go bankrupt you need to understand that if you have a vehicle worth more than £1000 there is a real risk that you will have to give it up and get a cheaper one or pay the OR the difference.

    2. Laura H says:

      Hi, I am going to make myself bankrupt, but I have a car worth £2525. I was going for a DRO through the Citizens Advice, but it has taken 6 months for them to help me, resulting in my car going up in value because of the new car shortage, so I cannot go down this route now.

      I am a carer for my daughter who has lifetime DLA and do a lot of childcare for my grandaughter, I need my car to get her to school and back as there is no public transport.

      I have a friend who will help me. Can she buy the car? Can I use the money to pay the bankruptcy fees and my car insurance, it is due on the 7th Feb, and also am I allowed to do a food shop with the money?

      1. James Falla says:

        Hi Laura

        It is clear you need your car. However, if you go bankrupt there is no guarantee that the official receiver will let you keep it. They might but it is just as likely they will say it is of excessive value and demand you pay £1500 to keep it.

        To to avoid this, yes you can certainly sell the car to your friend before you go bankrupt. You need to sell for fair market value. I would check we buy any If you sell at the value quoted by them, the OR won’t have an issue. Your friend can then in affect lend you the car and you continue to use it. It can still be registered in your name.

        The money you get for it can be used to pay for your bankruptcy application and your insurance. Any left over can be used for general housekeeping expenses. As such I would expect there to be little or nothing left to hand over to the OR once you are bankrupt.

    3. Dev says:

      If I declare bankruptcy what can happen with the car I pay monthly for?

      1. James Falla says:

        Hi Dev

        What happens to your car very much depends on what it is worth, the amount of outstanding finance and the attitude of the finance company.

        If the outstanding finance is more than the 2nd hand value of the car, the official receiver will not be interested and as far as they are concerned you will be able to keep the car as long as you keep paying for it. But then it will be down to the finance company. Some finance companies are happy for you to keep paying the finance after going bankrupt. Others are not. If they are not happy then you would have to return the car regardless.

        As you can see, this can be a complicated area There are lots of options you could consider. Before making your decision to go bankrupt, please give me a call and I would be happy to have a chat with you and give you further advice (0800 077 6180). The advice is free and without obligation.

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