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How bankruptcy affects me

Bankruptcy and my car

You may be wondering what will happen to your car if you decide to go bankrupt.

The ownership of your vehicle will be affected by bankruptcy whether you own it outright, or if you're paying for it through a finance package.

It can be difficult to work out how a vehicle will be dealt with after your bankruptcy, as this may depend on how an official receiver or finance company views your individual case.

The following sections give some general guidance on how the most common types of vehicle finance are dealt with.

You own your vehicle outright

The official receiver will only let you keep your vehicle if it’s essential and of low value.
A vehicle may be classed as essential if:

  • You couldn’t do your job without it
  • You or someone in your household needs it because of a disability
  • There’s no possible way you could get to work or school without your vehicle

If there’s any way you could use a taxi or public transport instead for any of these journeys, the official receiver won’t usually class your vehicle as essential, even if using public transport would be inconvenient. The official receiver will look in detail at public transport routes and costs in your area when making their decision.

If the official receiver agrees that a vehicle is essential for your household, they'll take into account the value of your current vehicle. They may order you to sell your vehicle, buy a cheaper alternative, and pay the difference to the official receiver.

This would usually only happen if your vehicle is worth more than £1,500, and the official receiver would normally allow you £1,000 to buy a replacement.

You may still be able to keep your vehicle if you can arrange for a partner, friend or family member to pay the official receiver the money they would have raised from a sale.

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Your vehicle is on hire purchase or conditional sale

Vehicles bought using a hire purchase or conditional sale agreement don’t belong to you until the last payment to the finance provider has been paid.

The official receiver may allow you to keep making the payments to a hire purchase or conditional sale agreement if the vehicle is essential, for example:

  • You couldn’t do your job without it
  • You or someone in your household needs it because of a disability
  • There’s no possible way you could get to work or school without your vehicle

If the hire purchase or conditional sale agreement ends before you’re discharged, ownership of the vehicle will pass to the official receiver. They may sell it at that point or allow you keep it, depending on the value.

The hire purchase or conditional sale agreement may include a clause ending the agreement if you go bankrupt. If this happens, the lender can repossess the vehicle and sell it. Some lenders may allow you to keep the car, even if there’s clause like this in your agreement.

You’ve taken out a logbook loan secured against your vehicle

A logbook loan is a way of borrowing money using your vehicle as security. It transfers ownership of the vehicle to the finance company until the loan is repaid.

The official receiver will check the logbook loan agreement to make sure it's valid. If the agreement wasn’t drawn up correctly, the logbook loan company won’t have security over your vehicle. In this case, the official receiver will treat the vehicle as if you owned it outright.

The official receiver may allow you to keep making the payments to the logbook loan if the vehicle is essential, for example:

  • You couldn’t do your job without it
  • You or someone in your household needs it because of a disability
  • There’s no possible way you could get to work or school without your vehicle

If the logbook loan ends before you’re discharged, ownership of the vehicle will pass to the official receiver. They may sell it at that point or allow you keep it depending on the value.

The logbook loan agreement may include a clause ending the agreement if you go bankrupt. If this happens, the lender can repossess the vehicle and sell it. If there’s any money left from the sale, it’ll be paid to the official receiver.

You have a vehicle under the Motability scheme

A Motability vehicle paid for using attendance allowance, disability living allowance (DLA) or personal independence payment (PIP) is a lease agreement. This means the vehicle doesn’t belong to you, so the official receiver can’t sell it.

Your Motability agreement can continue throughout your bankruptcy.

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If you're considering bankruptcy make sure you get professional and impartial advice first.

To find out which is the best debt solution for your circumstances, try our online debt advice tool. If bankruptcy is suitable for you, we can put you in touch with our bankruptcy team. They’ll give you specialist advice based on your personal circumstances.