Bankruptcy and Your Car
Like any other asset, your car can and will sold towards paying your debts when you are made bankrupt, however there are excpetions.
When you may keep your Vehicle or Car.
You may be allowed to keep your Vehicle or Car under the following circumstances.
- The vehicle is worth less than £2,000.
- The sale of the vehicle will not produce more than £500 for your Creditors.
This is can be the case when the car is owned by more than one person.
- The vehicle is essential for work or your vocation.
This means the car is used for work, for example a Taxi, or when there is no reasonable alternative for transport to and from a place of work.
If you are the full time carer of a disabled person, this may be classed as your vocation and an exemption can be granted on these grounds.
- A car is deemed necessary to ‘meet basic domestic needs’ where there is no realistic alternative.
Disabled pepole requiring a car for mobility would fall into this category. What is categorized as necessary is not based upon convenience when alternatives exists, except when the alternatives are more expensive. If you are able bodied and live an a urban area, then is not likely you can claim a vehicle as necessary to ‘meet basic domestic needs’.
Registered Keeper / Owner of a Vehicle.
The V5 document from the DLVA describes the registered keeper of a vehicle and clearly states that this is not necessarily the legal owner. It goes on to state that:-
The registered keeper is responsible for the vehicle’s day to day use on the road
- The person who is liable for licensing the vehicle.
- The person to whom the police and other enforcement authorities would direct any enquiries, eg motoring and parking offences.
The legal owner is:
- The person or company who purchased the vehicle eg a hire purchase or leasing company.
- The person who purchased the vehicle for their spouse/child etc.
So, if your name is on the V5 document, but someone else bought and paid for the vehicle, and this is provable, then you should be able to keep it.
Conversely, if you have bought and paid for a car which is driven and insured by someone else and they are also the registered keeper, but live at the other end of the country and you’ve never seen the car, it matters not. That car will to treated as your asset in Bankruptcy.
Joint Ownership of Cars in Bankruptcy.
Any asset may be jointly owned by two parties;- a car is no exception. The Trustee may only claim you share of any asset towards your bankruptcy. However this does not prevent the Trustee from forcing a sale to release your share. In the first instance, the Trustee will allow the other parties with part ownership to buy out your share.
Sale of a Car Prior to Bankruptcy
Any vehicle you have owned in the 2 years prior to the Bankruptcy will been included in the bankruptcy, or the monies from the sale will need to be accounted for. This even applies to a car innocently given to your spouse or one of your children are a Christmas present. You can’t sell or give away an asset in the hope of omitting it from the bankruptcy.
If you sell a car at less than it’s true value, this is called a Transaction At Under Value.
This is not allowed and may result in a Bankruptcy Restriction Order.
High Value Cars
If the vehicle is of a high value, you may still be required to trade down to a more modest one. Currently guidelines are a maximum of £2,000 for a replacement car, but can be higher depending on circumstances.
Deciding the Value of the Car
You have no say as to the value of the car. The Trustee values the vehicle referring to the online Parker’s Guide, for a guide price. For vehicles older than to M registration (1994), or for specialist or vintage cars it may be necessary to instruct agents to to obtain a value.
Hire Purchase Cars in Bankruptcy
If the vehicle is subject to a hire purchase, lease or conditional sale agreement, then the finance company may seek to repossess as your bankruptcy may break the terms of the finance agreement. This can happen whether the Trustee deems it to be exempt from the bankruptcy or not. It may be case that the Trustee can invite the car finance company to repossess the car if there is not enough equity in the vehicle to make selling it worthwhile.
Your Car & an IVA
It depends on the car and your circumstances. This is the case for all high value assets. It is normal to be allowed to keep a car worth a reasonable amount, especially if needed for work or family commitments. The conditions are not as strict as with bankruptcy.
For cars on Hire Purchase, this debt is secured and therefore can’t be included in the IVA, the HP company will simply repossesses the car if your do not maintain payments.
Normally you will be allow to keep making HP repayments while on the IVA, however once payments are completed, you will be expected to make increased payment into the IVA now that your outgoings are lowered.
It may be the case that you decide to cut your losses and return the car to the finance company. In this case the outstanding balence is not longer secured and can be included in an IVA propsal.
What To Do Next
If you are concerned about the prospect of losing your car or other vehicle in bankruptcy then CALL US or submit the INSTANT ADVICE form for Immediate Free Advice.