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Will I lose my car if I go bankrupt?

Posted 05 October 2015

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Going bankrupt can sometimes mean adjusting your lifestyle. Find out how going bankrupt could affect you if you have a car.

Will I lose my car if I go bankrupt?

Bankruptcy is just one of the many debt solutions you can use to deal with unmanageable debts. As with any debt solution, there are upsides and downsides to bankruptcy and whether it’s right for you, will depend on the types of debt you have, the amount you owe and other personal circumstances.

While bankruptcy can give you the clean break you need, it also means accepting that certain aspects of how you live might change, at least for however long the bankruptcy lasts anyway.

Today we’re going to look at how bankruptcy could affect you if you have a car.

As you may already know, when you enter into bankruptcy the Official Receiver (the person chosen to make sure that everything goes as it should with the bankruptcy) will look at your assets. Your assets are the things that you own that are worth something like your house, car or savings. They do this to make sure that as much as possible goes into the bankruptcy and that it runs as smoothly as it can for you and your creditors.

Of course every individual’s situation is slightly different, but as a general rule you are allowed to keep your car if it is essential and of low value. For your car to be essential you would have to show that you rely on it day-to-day. For example, if you are disabled or are looking after a disabled relative, then you may really need a vehicle and in this case you might be able to keep it. There are also certain jobs that require you to drive, say if you work in different places around the country or if public transport literally couldn’t get you there, then this would also be taken into consideration.

Low value is normally considered to be up to £1,000. So, if you have a car that’s worth more than this you may have to sell it and get a cheaper alternative.

What if I got my car on hire purchase?

If you got your car on hire purchase (which means that you pay the value of the car off gradually while you’re using it), the OR will look at whether the car is essential. If it is, you may be able to keep paying towards it.

Even if the OR deems it essential, you need to be aware that some HP lenders have a clause in their agreements that states they will repossess the car if you go bankrupt. It’s worth having a careful look through your agreement to find out whether this applies to you.

If you are able to keep paying towards your car, and you make your last payment while your bankruptcy is still ongoing, ownership will automatically pass to the official receiver. (This is because it is an asset). They will then decide whether you can keep that car or if you need to get a cheaper one or use public transport instead.

The Motability scheme

The Motability Scheme is designed to allow disabled people to lease a car if they are already eligible to receive certain government benefits. If you are disabled and in need of a car, but not in a position to buy one, then you may be able to benefit from this scheme. If you’re already part of this scheme and about to enter bankruptcy, then the car would not be considered yours, so you could continue using it throughout your bankruptcy.

So to summarise, you may have to sell your car or you may not, depending on what you use it for and how much it’s worth. Ultimately, the decision lies with the OR.

Hopefully, this has helped ease your worries about losing your car if you choose to go bankrupt. If you still have questions, we’re ready and willing to help. All you have to do is have a look at our page on bankruptcy or use the options on the left and we’ll talk you through whatever you need to know.

by Christine Walsh

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