Going bankrupt can be an extremely stressful experience. Worry is all but unavoidable for anyone who’s considering declaring themselves bankrupt, with one of the biggest concerns for people experiencing insolvency being the fear of the unknown. Yet the reality of bankruptcy, if you’re aware and knowledgeable about it, is nowhere near as bad as the imagined world of destitution and poverty that can exist in one’s imagination.
Obviously, it’s no cakewalk. Personal insolvency isn’t designed to allow a person to completely wash their hands of debt and start completely afresh with absolutely no consequences. But it is designed to allow people in extreme financial difficulty the ability to recover and try again.
Few people understand the true effect of declaring yourself as bankrupt. With strict laws and rules governing the process, it can have a very real impact in all areas of your life...
Let’s look into just what bankruptcy can mean for you and your vehicle. In order to do so, we’ll have to look at the different types of vehicle ownership and just what it might mean to you and your chances of keeping hold of your wheels.
A car you own outright
Bankruptcy is serious. In order for the court to eradicate your debts, you must be able to prove that you are insolvent (less assets than debt). And a car is an asset. If you’ve got a car worth £10,000 sat on your drive, don’t expect to keep it. But if you own a vehicle which is worth less than £1,000 and you can convince the official receiver OR that it is essential for your day-to-day life (you need to drive to work, drop your children off at school or there’s a disabled family member whose lifestyle depends on it, for example), you can keep it. However, if your car is purely for leisure/recreation purposes or you can reasonably be expected to use public transport to get to work, you will be expected to sell it.
If your car’s worth more than £1,500, the expectation on you from the official receiver will be to sell it and - if you can prove you need a vehicle - you would be allowed up to £1,000 from the sale with which to buy a replacement.
A car on hire purchase
Should your car have been bought under a hire purchase agreement, what happens to it depends on a couple of key factors. Firstly, you’ll want 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 your bankruptcy during the contract. If there is no such clause, the lender won’t demand the contract be terminated, by the official receiver might.
The OR will not only consider the equity in the vehicle but how much the finance agreement is costing each month, they may consider the monthly payments excessive and require the vehicle is returned and monthly contributions are made to your bankruptcy estate.
It works similar to how owning a car during bankruptcy works. If the net value (the vehicle’s actual value minus the outstanding finance amount) is £1,000 or less, you may be allowed to keep it. Again, only if you can prove that owning the car is essential to your and/or your family.
If the OR allows you to keep the hire purchase vehicle, you should inform the finance company of your situation. Most lenders will be happy to continue with the agreement, provided you are able to keep up your repayments. Some may not be, though. So it’s vital you speak with them and check.
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. If you’re leasing a car when you declare bankruptcy, your receiver will almost certainly demand you end the contract with immediate effect.
After bankruptcy, provided that you can demonstrate that you have made reasonable steps to recover financially, you may well find leasing companies prepared to lease another car to you.
Bankruptcy can be a tough time. Personal insolvency isn’t something anyone plans for themselves, but sometimes it’s the best course of action. If you’re considering declaring yourself bankrupt, but don’t know where to start or what to do, then why not get in touch with us here at McAllister & Co.? We’re insolvency practitioners with a proven track record of helping people with bankruptcy.