You are normally allowed to keep your car if you go Bankrupt. However it usually has to be worth £2000 or less.
Included in this article:
- Can you keep your car if you are Bankrupt?
- What if it is worth more than £2000
- Could you sell it before going Bankrupt?
- What happens if it is on finance?
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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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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.
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.
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.
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.
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?
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.