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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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28 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. 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. 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. 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.

  4. Pauline says:

    Hi, I’m a community nurse that uses my car for work and need to fit in a wheelchair for patients. It’s valued at around £4,200 and is 8 years old. Will I loose this if I file for bankruptcy ? If so I cannot work.

    1. Hi Pauline

      As highlighted in the above article if you go bankrupt you are normally only allowed to keep your car if it is worth £1000 or less. Generally speaking the only exception to this is if you are self employed and the vehicle is a tool of your trade (for example a plumber’s van or driving instructor’s car).

      In your situation you are not self employed and so the waters are muddied. If you have a specific need for your particular car (eg space for a wheelchair) it is possible that the official receiver will allow you to keep it. It would certainly help if you receive a car allowance or anything like that from work which then suggests that your employer requires you to have a vehicle of a certain standard.

      Remember if the OR feels that your car is not exempt you will not be left without one. They will just require you to sell your current one and buy something for £1000 or less. Any excess funds will then have to be given to them.

      If you do not get a specific car allowance from work then unfortunately the only way to guarantee your car will be OK is to sell the one you have before you go bankrupt. You are then in control and can buy a cheaper one which suits your needs. You can then use the excess to pay for a full service and the cost of going bankrupt.

  5. Kate says:

    Hi my Husband and I both need to go bankrupt with £45000 of debt mainly in my husbands name. But my husband is refusing to do it he doesn’t want to loose his car we have on finance paying £100pm. He needs it for his job and it needs to be reliable as he works in the hills cut off from people and mobile signals.

    He’s worried he would have it taken and would have to buy a banger for £1000 like he previously had that would break down and he would be stranded up there. Would the OR let him keep the car on finance? We need to go bankrupt for ours kids sake and my sanity! its just this car issue that’s holding him back.

    1. Hi Kate

      Whether or not your husband will be able to keep this car depends on the following three things. If they are all OK then he should be able to keep it:

      First and most important the net value of the car must be £1000 or less. In other words if the current second hand value less the outstanding finance is £1000 or less (it may even be negative) then that is the first hurdle overcome. Second is the monthly payment reasonable? If your husband is paying just £100/mth I do not think the Official Receiver (OR) would have any issue with this particularly given his need for the vehicle.

      Given you are OK on the first 2 things the third is nothing to do with the OR but the finance company itself. You would need to speak to them. Ask if your husband goes bankrupt but maintains the monthly payment will they have any issue. Most finance companies are fine. However some are not and will automatically recall the car if the person on the finance agreement goes bankrupt.

  6. Jay says:

    Hello

    I have a single loan totalling £22000 and with no income I am considering going bankrut. My wife has a car registered in her name but we have joint insurance. Would the car be sought by the official receiver if I went bankrupt?

    1. Hi Jay

      As long as your wife paid for the car from her money (i.e. you did not buy it for her in the recent past) then regardless of the joint insurance it is her asset. As such it is not included in your bankruptcy and will not be at risk.

  7. Rob says:

    Hi.

    I’m considering bankruptcy after my partner was unemployed for about a year due to health and I built up debt in the process. We both now work and both use a car each to commute (one in my name one in his).

    My car is low value of about £1000 but I wondered whether if I go bankrupt would it mean he had to declare / give up his car (about £3500) ? Or is it classed as his asset and not affected? We rent our house so the cars are the only assets of any value. Thank you

    1. Hi Rob

      If you were to go bankrupt you should not need to worry about your partner’s car. Given he paid for it with his funds it is not your asset. As such it does not form part of your bankruptcy estate and it would not be at risk.

      Depending on how you work your finances you might have to give a household income and expenses budget in your application and this would need to include his car expenses. However the car would not be at risk.

      The only time his vehicle would be at risk is if you paid for it. If this is the case it is your asset and not his. If the official receiver had reason to believe that was the case then he would only be able to keep it if he buys it back from the official receiver at the current 2nd hand value. In these circumstances the fact that it is registered in his name does not make any different (registration is not proof of ownership).

  8. Kate says:

    Hi my husband went bankrupt 3 weeks ago he has a car on pcp which th OR has no interest in and hes allowed the payments to carry on but the finance company wont allow my husband to keep paying and want the car back they say we will then owe the surplus amount, problem is they take the car my husband doesnt have one for work which is 20miles away in the hills we cant afford to buy one what can we do is there any help for this situation?thanks

    1. Hi Kate

      This is a problem with certain car finance companies. Unfortunately there is nothing you can do as it is not up to the OR. If the car finance company’s policy is to demand the return of the car this is what will have to happen.

      A little bit of good news is you do not need to worry about any shortfall still owing on the finance once the car is taken back. That is classed as a contingent debt and is included in your husband’s bankruptcy. Once the bill comes through he just needs to inform the OR and they will deal with it.

      That said unfortunately your only option now is to source another car. It is worth speaking to sub prime lenders such as Money Barn or Motonovo who might still consider your husband for finance. Otherwise you could consider taking finance for a car in your name.

      It is a shame you did not ask for advice before your husband went bankrupt. Had you done so I would have suggested that he spoke to the finance company in advance and asked them if they would have an issue if he went bankrupt. You would have then been forewarned about this and you could have considered your options before hand.

  9. Charlotte Jones says:

    I am looking to go bankrupt. I have a car that is registered in my name but the finance is in my ex partners. i do however, transfer £188 a month to him to cover the finance. Will I be expected to sell my car in these circumstances as I use it for work.

    1. Hi Charlotte

      Even though the car finance is in your ex’s name I assume you consider the car to be yours. Given this if the outstanding finance is greater or equal to the current second hand value of the car (less £1000) then the official receiver will not normally be interested in it. You should therefore be able to continue paying for it and using it.

      The only issue you could face is if they do not believe the car is yours. They could then say that you are not allowed to continue paying finance on a car that belongs to someone else. However I think this is unlikely.

  10. Rwilliams says:

    Hello i am likely to be going to go bankrupt next month.

    I owe 23k and have a car worth 4k. i would like to sell this to my father for a token amount as i owe them 2k in rent and other expenses. if i sign my car over to my father to pay for what i owe them as its all i have got before i file bankruptcy will the receivers want to take it from him ??

    Many thanks

    1. Hi Rwilliams

      I am afraid your plan will not work. If you sell your car to your Father for a token amount this is a transaction at under value. The OR will over turn this and demand that your Father hands back the car. They will then proceed to sell it. You also risk getting a BRU (Bankruptcy Restrictions Undertaking).

      If you give the car to your Father in lieu of debts that you owe him this is a preferential payment. Again the OR will demand the return of the car and you risk a BRU. As such neither of these two options will work.

      As described in the above article you are best off selling the car for a fair market price before you go bankrupt. You can sell to We Buy Any Car if you wish. Then use the money you make to buy a replacement vehicle for no more than £1000. Then service the vehicle and pay for the insurance.

      You can then use the remainder of the money to pay your bankruptcy fee. If there is anything left over you will have to give this to the OR however it is likely to be a fairly minimal amount.

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