Can I keep my car when I go bankrupt?

The answer is most likely.

As everyone’s situations are different and car values differ the easiest way to determine if your car can be kept when bankrupt is to read the below 3 case studies as one will relate to your situation.

The Australian Financial Security Authorities standard rule is that there’s a cap of $8,000 allowable for a vehicle. This cap can be confusing especially if you have a loan against the car.

So rather than talk about the how’s and why’s click the below tab which closest resembles your car situation. These 4 situations can fit 99% of current situations so I’m confident that you’ll find your answer here.

Choose your situation:

You have a car and its value is less than $8,000 and you don’t have any loan against it (owned outright)
You have a car and its value is less than $8,000 however you have a loan against it (loan amount doesn’t matter)
You have a car and its value is more than $8,000 and you don’t have any loan against it (owned outright)
You have a car and its value is more than $8,000 and you have a loan against it

If you have a car and its value is less than $8,000 and you own it outright the simple answer is yes you can keep the car – you must include this car as an asset and record it’s value in the documentation, however, the bankruptcy trustee will not take the car as it’s under the limit

If you have a car worth less than $8,000 and have a loan against it again you can keep the car as the value you have in the car is less than $8,000

Now when you have a car and its value is more than $8,000 and you don’t have a loan against it is when you need to start looking at options. For example, Bob had a car worth $15,000 and he owned it outright. He needed to declare bankrupt but didn’t want to lose his car. Bob has 2 options. He could surrender the car to the trustee who would sell the car and pay Bob $8,000 back so he could buy a vehicle and the remainder would be paid to the creditors. Option 2 is that Bob could negotiate with the trustee to pay back a portion of the equity above the limit of $8,000. An example would be that bob’s car is $15,000 minus the limit of $8,000 gives a net equity above the limit of $7,000 – Bob could negotiate to pay $5,000 of that $7,000 over the next 24 months @ $208 a month and keep the car. Both options could work, however, you would need to receive pre-insolvency advice to ensure you get the best option.

If you have a car and its value is more than $8,000 and you have a loan against it, this is where rather than looking at the value of the vehicle we need to consider the available equity.
The available equity can be $8,000. So if bob had a car for $20,000 and a loan of $12,000 the available equity in the car is $8,000 which is acceptable so bob can keep his car. Remember, though you will need to continue to pay the car loan or the vehicle will be repossessed. However, if Bob only owed $10,000 the equity would be $10,000 which is above the limit. So in this situation, Bob could either surrender the vehicle and the trustee would sell and give Bob back $8,000 from the sale proceeds so he could buy a vehicle. The other alternative is that Bob could negotiate to pay the trustee the $2,000 that he’s above the limit over the next 24 months which might be affordable.

You see how it’s really up to the individual to determine the suitability of each option. If you need a car for work it seems only natural that you would need a car after your bankruptcy is lodged.

What happens if I can’t afford my car after bankruptcy.

Well if you decide to keep your car with the loan and in 12 months your situation changes and your car loan is no longer affordable. You’re still protected underneath bankruptcy. What this means is that the finance company can still repossess the car as it’s classified as a secured loan, however, they can’t chase you for any shortfall after they sell the car as the debt was taken out prior to the bankruptcy.

Also, you need to be aware that many payday lenders will register an interest on the PPSR (Personal Property Securities Register) when you take out a loan with them. This means that even though their debt is included in the bankruptcy they have the right to repossess your car as they have registered an interest on the vehicle.

So, just be careful and if you need more specific advice feel free to enquire now or call us anytime between 7am-7pm 7 days a week.

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