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Bankruptcy - Motor Vehicles

A look at how bankruptcy may affect any vehicle you own or use.

The loss of a vehicle is a common concern for many that consider bankruptcy when dealing with debts.

A vehicle is an asset

A motor vehicle of any kind counts as an asset, and thus it could be used by the official receiver or trustee to sell in order to help pay off your debts.
You can request that you keep your vehicle, if you have just cause to do so. Every case is unique, so there is no set answer as to whether a vehicle will be sold off as an asset – but it is a distinct possibility.

How does the official receiver decide what to do with a bankrupt’s vehicle?

The receiver must decide whether a vehicle is a sellable asset, or instead is exempt. Exempt property is something that cannot be claimed as one of your assets and thus can’t be sold.
To get a vehicle exempted, you would have to show the official receiver that your vehicle is necessary for your personal use in your employment, business or vocation, or to meet an urgent domestic need.

Criteria Used By The Official Receiver

The official receiver will look at whether the vehicle is used in the bankrupt’s line of work, and whether without the vehicle that individual would find it difficult to travel to their place of employment. They will also consider whether depriving you of a vehicle would make it harder to obtain employment.
There are other exemption reasons. For example there is the issue of “vocation” that could include being a full-time carer where a vehicle is of some importance.
A domestic need: the receiver will consider if there is a genuine need for a vehicle rather than merely for convenience.
If you have a disability, then you must show that the vehicle you own gives you a standard of living and an independence that would be lost without the car. To give an example, it may be the only way you can feasibly get to medical appointments or receive care related to your condition.
If your vehicle is used to take children to school, you must demonstrate that there is no viable alternative to your vehicle, and that the distance to travel makes other options impractical. The receiver will look at the evidence on a case-by-case basis and make their decision.

Vehicles of value

A value of a vehicle is important, whether the vehicle is needed or not. The need for a vehicle may require a bankrupt to retain a vehicle, but it does not necessarily give that person the right to any vehicle, merely one that serves a purpose. Thus, a car can be sold and the debtor provided with a cheaper alternative. The money from sale proceeds will be provided by the official receiver for the purchase of a cheaper vehicle.
It is possible for a third party to pay the official receiver a fair price for a vehicle to avoid the costs of putting it up for sale.
The replacement allowance for a cheaper vehicle currently stands at £1,000. If you feel you need a more expensive vehicle, you will have to demonstrate why this is. On the flip side, if your existing vehicle is of low value, it is unlikely to be used as an asset and sold off, as it would not be worth the costs involved to do so, so the vehicle will usually be kept by the bankrupt, whether it would have been exempt or not. There may be a nominal resale fee however.

If the vehicle is not exempt

If this is the case, it becomes the property of the official receiver, who can sell it on to pay creditors. He or she will use a price guide to value the vehicle. With a value decided on, the receiver might ask if you wish to keep the vehicle, if a 3rd party can pay for it and the relevant documents can be provided.

Personalised number plates

The official receiver will have the plate valued, and it can be sold to raise funds. Again you may have the option of keeping it by purchasing it via a third party.

Vehicles purchased via a finance agreement

Under such agreements, you do not own the vehicle, so the finance company may exercise their right to end the agreement in certain circumstances. The vehicle can often be taken back off you. In such situations, the official receiver will contact the finance company to get the full details of the agreement. The receiver can then decide what the best option is, and if it is viable to sell the vehicle. If you simply borrowed the money from a bank or finance company to buy the vehicle, they are unlikely to have any rights to take back the vehicle.

If my vehicle is part of the Motability scheme, will I be able to keep it?

Yes. If you took on your vehicle under a contract hire variable lease agreement, the official receiver or trustee has no interest in the vehicle and cannot object or consent to you keeping it.
If you are buying your Motability vehicle under a hire purchase agreement, the agreement works in the same way as any hire purchase agreement, but depends on you continuing to receive the relevant benefit. It is for Motability to decide whether they wish to end the agreement because you have been made bankrupt.
If Motability allow you to keep the vehicle, you are responsible for continuing to make payments from your higher-rate disability living allowance.

Free debt counselling and advice is also available from the Money Advice Service available at: www.moneyadviceservice.org.uk

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