Life During Bankruptcy – Your Car

Can I Go Bankrupt And Keep My Car?

The short answer is yes, you can keep your car if you file for bankruptcy. When it comes to whether or not you are able to keep a particular asset like a vehicle, it really depends on the value of the vehicle. The good news is that the legislation makes sure that your transport is protected. For example, if your vehicle is worth more than the threshold value, $9,100 and you are unable to keep it, then when the trustee sells your vehicle the trustee is required to give you $9,100 for you to be able to buy an alternative car that is protected for you.

Bankruptcy and Cars

Here is what you need to know about bankruptcy and cars including your transport during bankruptcy:

  • Cars and motorbikes are protected up to a threshold value of $9,100 to ensure you have transport during bankruptcy.
  • The threshold value is based on the auction value of the vehicle and not the amount a similar vehicle is advertised for sale by a motor dealer. To assess the auction value of your vehicle we recommend redbook.com.au The dealer wholesale value provides a good estimate of the auction value of your vehicle.
  • The threshold value applies during the three years of bankruptcy and is updated twice a year for the CPI.
  • You can change cars during bankruptcy but the value of your car during bankruptcy should always be at or below the threshold value allowed for your car.
  • You can have multiple cars and motorbikes whose combined auction value adds up to the threshold value.
  • Husband & wife can have one car and combine their threshold values to have a car of greater value.
  • You can keep a vehicle subject to a lease or hire purchase, provided the value of the vehicle does not exceed the loan payout amount by more than $9,100
    (the threshold value). You will be required to continue paying the monthly payments. It is very rare for a lender to not want you to keep the vehicle and continue making the monthly payments. As to whether you keep the vehicle or hand it back is your choice.
  • If you hand back to the lender a financed vehicle before or when you become bankrupt, any shortfall incurred by the lender will be caught by your bankruptcy.
  • If you intend to continue using your financed car during bankruptcy, check to see if it has a balloon payment at the end of the contract term. This can be relevant if you are wanting to continue using the car once the period of finance payments finishes. Your bankruptcy may negatively impact the financier being prepared to finance a payment arrangement for the balloon payment. We are not saying this will happen, but it could happen. We have seen people receive support from family for them to retain the use of their vehicle. This involves a family member saving and/or borrowing and paying the balloon payment for you to continue having the use of the car.
  • You can spend money on maintaining and improving your car provided its value does not go above the threshold value.
  • If you have a vehicle with an auction value above the threshold value, your family can pay the difference to your bankrupt estate (auction value of vehicle less the threshold value), for you to continue using the vehicle.
  • Can you lease a vehicle with bankruptcies? Yes you can have a car on a novated lease while bankrupt.
  • You can have a company car provided by your employer while bankrupt.
  • Insurance and registration of your vehicle(s) are your responsibility.
  • If the car you use is leased by your company and your company is going to cease operations, be aware that you may have trouble transferring the lease for the vehicle to your name. If the lease remains in the company\’s name and you continue paying the monthly finance payments for your continuing use of the vehicle, be aware that down the track when you sell the vehicle, you may have difficulty signing the rego over to the buyer, as you will no longer be the director of the company.
  • If you have a company vehicle that you wish to keep, and the vehicle has value or equity, to comply with the provisions of the Corporations Act you must pay that amount to the company.

Car Loans For Current Bankrupts

Getting a car loan when you’re been bankrupt can seem like an impossible task. But the good news is that it isn’t as hard as it may appear. There are plenty of lenders in Australia willing to consider applicants with bankruptcy on their record, so long as they meet certain criteria and demonstrate good credit behaviour since being discharged from bankruptcy. Generally speaking, most persons who have been bankrupt will have to wait two years after the date of discharge before applying for another loan or credit card product in Australia. This is because the bankruptcy will remain on your credit record for two years after you are discharged from bankruptcy. In some cases however, this time period can be shortened significantly if you ensure your utility bills are paid on time and establish a regular saving pattern during your period of bankruptcy and prove yourself capable of managing debt responsibly once again. It’s important to note that interest rates for these loans tend to be higher than those offered by traditional lenders due to the higher risk profile associated with borrowers who have been declared bankrupt in the recent past. However, even with this additional cost factor, getting approved for a car loan soon after being discharged from bankruptcy is certainly possible – provided you do your research and talk to possible lenders who may provide finance for your car.

If you need more bankruptcy information or would like to discuss your bankruptcy situation, give us a call on 1300 794 492 or email: hello@understandingbankruptcy.com.au and we will answer your questions.