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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. Linda says:

      My son is struggling with his debt. I’ve told him to go bankrupt but he doesn’t want to loose his car which I paid for. I can prove I gave him the money to buy it last year. It is currently valued about £4ooo. Will it be at risk?

      I transfered the money from my account to my sons account and he went in to buy it.

      1. James Falla says:

        Hi Linda

        Generally speaking if you have paid for a car that your son uses on a full time basis it can still be argued that you are the owner of the vehicle. This is the case even if he is the registered keeper and pays to maintain and insure it. As such it is not his asset and it cannot be claimed by the official receiver (OR) if he goes bankrupt.

        Having said that in your situation where you gave him the money and he then used that to buy the car there could be a problem. If the OR wanted to be difficult they could argue that you simply loaned money to your son which he then used to buy a car. As such the car is his and you are simply one of his creditors (ie one of the people he owes money to). In this scenario the OR could then claim it as one of his assets.

        If you gave him the money on the same day as he used it to buy the car I would think that you could argue that the transaction was purely out of convenience and it was always the intention for you to retain ownership of the vehicle. However there is a risk that this will not be accepted. Worst case the OR will argue it is your son’s and then you will have to pay the difference between its value and £1000 for him to keep it.

        If you do not want to take this risk one option is for him to sell the vehicle before he goes bankrupt. He then uses the cash raised to buy one for around £1000 and uses the excess money to pay for a full service and year of insurance. He could then use the residual money to pay for the bankruptcy application.

    2. Stephen says:

      Hi there. Basically I have been going through a bad time and now am going bankrupt. I was wondering as i ride a scooter for work worth around 2000 if that was at risk? I have looked at the value and it’s around two thousand or maybe a bit over…

      1. James Falla says:

        Hi Stephen

        When you go bankrupt you are allowed to keep your vehicle (car or bike/scooter) if you need it. However its value must be no more than £1000 (unless you are self employed and it is a tool of your trade).

        The first thing you should do is check whether the second hand value of your scooter is truly £2000 (“we buy any car” is a good place to check this). If it is worth £2000 you will risk losing it.

        In this situation one option you should consider (as discussed in the article above) is selling it before you go bankrupt. You can then use the proceeds to buy an alternative for no more than £1000. The remainder of the money can be spent on paying for an MOT/service and any left over can be put towards the bankruptcy application fee. Doing this is perfectly acceptable.

    3. Sally says:

      Hello I’m considering going bankrupt. My partner bought a car out right so that I could get to work and take the children to school. All payments for the car are from his account, I have receipts to show this.

      We put the car in my name as we would have had to buy out of my insurance policy. The car is worth about £3400. Is there any way I can stop the sale of the car? None of my family or partner know about my financial problems…

      1. James Falla says:

        Hi Sally

        The fact the car is registered to you does not mean you are the owner (proof of being the registered keeper is not proof of ownership).

        Given your partner bought the car with his money and continues to pay all the bills associated with it directly from his account then clearly the intent is that the car is his and you simply borrow it. As such if you go bankrupt it should not be at risk as it is not your asset.

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