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 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
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).
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
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.
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.
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.