Going bankrupt can be an extremely stressful experience.
Worry is unavoidable for anyone who’s considering declaring themselves bankrupt, with one of the biggest concerns being the fear of the unknown.
But there is light at the end of the tunnel: the reality of bankruptcy is that if you’re clued up on what it involves, it’s actually nowhere near as bad as the world of destitution and poverty that you imagine might be conjuring up.
However, it goes without saying that bankruptcy is no walk in the park, and can have a very real impact on your day-to-day life. In fact, one of the questions we get asked frequently here at McAlister & Co is “can I get car finance after bankruptcy?”
So, if you’re wondering how bankruptcy could affect your car, read on to find out…
What happens when you declare yourself bankrupt?
As we said above, bankruptcy isn’t something that should be taken lightly. With strict laws and rules governing the process, bankruptcy can have a very real impact in all areas of your life.
Personal insolvency isn’t designed to enable you to completely wash your hands of debt and start afresh without any consequences. But it is designed to allow people in extreme financial difficulty the ability to recover and try again.
So, what does bankruptcy mean for my car?
What bankruptcy means for you and your vehicle and whether or not you will be able to keep hold of your wheels depends on the type of vehicle ownership you have. Let’s take a look at the different vehicle ownership options and what they mean to you…
A car you own outright
In order for the court to eradicate your debts, you must be able to prove that you are insolvent and that you have less assets than debt – and a car is considered an asset. Essentially, if you’ve got a car worth £10,000 or more sat on your drive, don’t expect to keep it.
However, if you own a vehicle which is worth less than £1,000 and you can convince the official receiver that it is essential for your day-to-day life (for example, you need to it drive to work, take your kids to school or if there’s a disabled family member whose lifestyle depends on it) then you may be able to keep it. Otherwise, you will be expected to sell it.
If your car is worth more than £1,500 then, the official receiver will expect you to sell it. If you can prove you need a vehicle for the reasons outlined above, you will be allowed £1,000 from the sale with which to buy a replacement.
A car on hire purchase
If your car has been bought under a hire purchase agreement, what happens to it depends on a couple of key factors.
Firstly, you’ll need to check the small print of your contract. Some agreements will have a clause stating that the car will be instantly repossessed and becomes the full and indisputable property of the lender in the event of bankruptcy.
If there is no such clause, the lender won’t demand the contract be terminated – but the official receiver might. The OR will not only consider the equity in the vehicle, but also how much the finance agreement is costing each month.
If they consider the monthly payments to be excessive, they may require the vehicle to be returned and monthly contributions are instead made to your bankruptcy estate.
Basically, how this is determined works in a similar way to if you own a car. If the net value is £1,000 or less, you may be allowed to keep it if you can prove that owning the car is essential.
In this case, you should inform the finance company of your situation; some will be happy to continue with the agreement provided you are able to keep up your repayments, although some may not.
A leased car
Leasing a car is not entirely dissimilar to having one on hire purchase. The crucial difference, however, comes in the ‘purchase’ part. Leasing is basically just like long-term renting – at no point will you own the vehicle.
As such, if you’re leasing a car when you declare bankruptcy, your receiver will almost certainly demand that you end the contract with immediate effect.
Can I get car finance after bankruptcy?
After your bankruptcy has ended and you’ve been discharged, provided that you can demonstrate that you have made reasonable steps to recover financially, you may well find that leasing companies are prepared to lease another car to you.
However, it’s usually best to wait at least 12 months to try and improve your credit score before you start to apply for credit again, as it may be seen as a negative if you start trying to get credit straight away.
Remember, if you have a low credit score, you won’t get the best finance options – so it’s definitely worth trying to improve your credit score, or even opting to save and purchase a cheap car outright.
How can I improve my credit score?
If your credit rating is poor, it’s really important to rebuild your credit score. Some simple ways to do this include the following:
- Try to use credit such as credit cards little and often and pay them back on time each month
- Fix any mistakes on your credit report which could impact your score
- Make sure you are on the electoral roll so lenders can find your details when you apply for finance
- Pay all of your bills on time
- Avoid making multiple credit applications in a short space of time
How McAlister & Co can help
So, in answer to the question “can I get car finance after bankruptcy?” – yes, you can. It’s just important that you rebuild your credit score first.
Bankruptcy and personal insolvency can be an incredible tough time, so if you don’t know where to start or what to do, contact McAlister & Co today for free, confidential advice.
With over 20 years of experience in personal insolvency, we have a proven track record of helping people with bankruptcy – why not have a read of our personal insolvency FAQs here if you are unsure where to start?
