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 are Bankrupt?
- What if it is worth more than £1000
- Could you sell it before going Bankrupt?
- What happens if it is on HP?
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Can you keep your Car if you go Bankrupt?
If you have a reasonable requirement for a car (for example to get to work, take your children to school or other family commitments) you should be allowed to keep one if you go bankrupt.
The only time you may not be able to keep a vehicle is if you do not need it. This could be because you walk or use public transport for your daily travel needs and just own it for pleasure.
Where this is the case the Official Receiver (OR) will usually 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 Car 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.
If your vehicle is a tool of your trade it is exempt from Bankruptcy. As such you should be able to keep it even if its value is greater than £1000. The same applies if you have a special medical condition.
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 HP and you go Bankrupt?
If your vehicle is on a Hire Purchase (HP) or a 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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