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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I have a Mitsubishi Colt worth around £1200, but I need the vehicle as I have arthritis and I live with my friend who has cancer and a stoma, so we need the vehicle to attend appointments and such. She doesn’t and can’t use public transport, I am her registered career and she is unable to drive, if I declare bankruptcy will I lose my car?
Hi Tricia
Although the rules state that your car should be worth no more than £1000, the official receiver can use discretion in certain situations. In particular where there is a need for a vehicle due to a medical condition. As such even if you car is worth £1200 I do not think you have anything to worry about. I am confident you would be able to keep it if you go bankrupt.
Also remember you should check the value on webuyanycar.com You can then take off a couple of hundred pounds from the value they give you for the inevitable knock downs they would come up with. Using this method you might find that the value of your Mitsubishi is actually less than you think anyway.
My father has gone bankrupt his car is worth about £4000 they have said they are going to take the car however my husband is disabled and my father takes my husband to appointments and takes him out when I cant due to having 3 young children he also takes his grandchildren out so needs a reliable and big enough car to fit 3 carpets plus wheelchair in which his car does is there anyway round keeping the car
Hi Sadie
This is a difficult one. The official receiver will normally only exempt a vehicle worth more than £1000 if the owner themselves has a specific medical or business need. Given that it is not your father who is disabled but your husband I am not sure the OR will be able to help.
You should certainly make your case to the OR by clearly describing the needs of the family. You never know you might be lucky. However according to the rules I think the £3000 in the car (the difference between £1000 and its value) will have to be realised.
If the OR is unable to help then make sure you use the lowest possible amount to value the car (this is normally on we buy any car.com). Then your Father can keep it by paying the difference. If this is not possible then worst case it will have to be sold and your Father will be given £1000 to buy a replacement.
Hi, We recently purchased a car for £1150 and are planning to apply for bankruptcy. The car is 2003 reg. will the car be taken because we paid over £1000 for it? How do they value the car? I’ve valued my car of several websites each give me a different figure. Some are less some are significantly more. Your advice will be much appreciated. Thanks
Hi Maxine
I do not think you have anything to worry about. I recommend that you go to webuyanycar.com and double check the value of your car on there. This is normally a realistic immediate sale price and is usually acceptable to the OR. Even if we buy any car say it is still worth £1100 I would be confident that the OR would not be interested in it. The margin between £1000 and £1100 is too small.