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Living on a debt solution

Will I lose my car whilst on a debt solution? Parts 1 and 2

Posted 13 November 2015 by Shelley Bowers

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So you think you need a debt solution, but you’re worried you’ll lose your car. Find out what happens here.

What happens to your vehicle when you enter into a debt solution is question we are commonly asked at Debt Advisory Centre: it is understandably a worry for many people. This is especially true if you have kids or other people depending on you for transport, or you have to use your car or a van for work. So, in this three-part blog, we’ll look at what happens to your vehicle if you decide to enter into a debt solution.

We've put parts 1 aand 2 together, we think it'll be easier to digest like that, then tomorrow they'll be part three. 

Please note that this information is for people living in England and Wales. If you live in Scotland, there are a number of other debt solutions available for you, you can read about them here – Scottish Solutions

First we need to make it clear that each individual case is viewed as just that – individual. So, we can only give you a rough idea of what might happen, or what happens in most cases, which does not mean it will happen to you.  So if you’re thinking of entering into a debt solution, and you own a vehicle, it’s best to speak to a trained debt advisor. They’ll be able to tell you, in detail, what your options are and the best way to move forward. You can speak to one of our advisors by clicking any of the ‘contact us’ buttons on the left of the page. You can also get free, impartial debt advice from the Money Advice Service

An important note about assets and vehicles

An asset is anything that can be sold to help pay off your debts. However, what the asset is worth is not simply what you paid for it, but what you would get for it, if you sold it on now, in its current condition. Assets can be anything from your home to expensive paintings or antiques, jewellery, specialist tools or a vehicle. And vehicles include cars, vans, trucks, in fact anything that you own that has two, three or four, or more in some cases, wheels and can be driven or ridden. So this includes expensive bikes, motorbikes, mopeds, cars, trucks, quad bikes, vans and every other type of vehicle you can think of. 

Right, now we have the clarifications out of the way, let’s start by looking at what happens when you own a vehicle and you’re thinking about bankruptcy as a debt solution.

Bankruptcy

Whether you can keep your vehicle when you enter into bankruptcy will depend on a number of things. The first to consider is whether you own it outright, bought and paid for, or you are paying for it on finance. If you are paying for it on finance, usually called hire purchase (HP), skip down to Cars on HP.

If you own it outright, the official receiver (OR) will only agree to you keeping your car if it is essential and of low value. So what do they mean by essential and what is classed as low value?

Essential would be if you needed your car to get to work each day, because your place of work can’t be reached by public transport or you have to be there very early in the morning, or leave late at night. Or it’s essential for the type of work you do, for example, if you are a mobile hairdresser or dog groomer. Another scenario would be if you, or someone in your household, is disabled and needs the car to get around or you have young children and a car is essential for you to get about.

The car also needs to be worth £1,000 or less. If it is, the OR will likely let you keep it. You may also be able to keep a vehicle if it is valued at over £1,000 in some circumstances, for example if it’s an adapted car for a disability.

There’s also the possibility of keeping a car worth over £1,000, when it’s essential, if you can get a relative to pay the difference into the bankruptcy. For example, if the car is worth £1,500 and your relative will pay you £500 that you can put straight into your bankruptcy, it’s likely that you would be able to keep it. If you don’t have a relative who can pay the extra amount, the OR might request that you sell the car and buy another one that’s valued at £1,000 or less.

Okay, that’ll do for today, come back tomorrow for part two, where we’ll talk more about what happens to your vehicle on some other debt solutions. 

So, we’ve covered what happens if you have an essential vehicle, but what if the OR doesn’t agree? If the OR sees that you’re able to complete all your necessary journeys using taxis, buses, trains or trams, they won’t class your vehicle as essential. And this will apply even if using public transport causes you a certain amount of inconvenience. To make their decision, the OR will look at the available public transport in your area and the costs involved in them.

Even if your vehicle is essential, the OR may ask you to sell it and get a cheaper one, if they deem it to be high value. The OR consider any vehicle worth more than £1,000 to be high value. If you are asked to do this, you’ll have to give the difference, if there is any, from the sale to the OR.

Alternatively, you may be able to keep your vehicle if you can get another family member to give you what you would have made for it, had you sold it. This might be the way forward if you have a car that holds some sentimental value.

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Cars on HP

If you have your car on a hire purchase (HP) or a conditional sale agreement (CSA) here’s what will happen. Again, if the car is essential for your life, under the same conditions in part 1, you may be allowed to keep it. However, you may also find that there’s a clause in the hire purchase agreement that states that, should you become insolvent, the agreement is cancelled and you’ll have to give the car back anyway.

Even if you don’t, a vehicle bought on HP or CS, is not really yours until the last payment has been made. If this happens while you are still in bankruptcy, the car then becomes the property of the OR.

The OR may also expect you to sell a car, if it’s got equity in it. By this we mean, if the car is worth more than you have left to pay on the HP. You would then be able to keep some of the money you got for the car to but yourself a run around, putting the remaining amount you got for the car into your bankruptcy.

And finally, if you’re on benefits and that’s your only source of income, you would not be expected to pay anything into the bankruptcy anyway, so the OR would probably not expect the car to be returned.  

See more about bankruptcy solutions here./p>

IVA

An IVA is another debt solution you may wish to consider. So what happens to your vehicle with this one? Well, again it depends on the value of the car and your circumstances. If the car isn’t worth much and is needed for school, family or work commitments, then you’ll more than likely be allowed to keep it – the rules are less strict than those for bankruptcy. If you have a high value car you may be asked to sell it and purchase a less expensive one.  

If you have a vehicle on HP or CS, you will normally be allowed to keep making the payments. Again though, some companies will have a clause that says if you become insolvent you have to give the car back.

Once you’ve finished paying the HP agreement, the money that you used to pay for the HP will have to go into the IVA instead.    

In part three we’ll see how entering into a DRO, a debt management plan or a using debt consolidation affects your vehicle ownership.

by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.