Bankruptcy and your car

Every day here at Safehaven, we field question about whether or not people can keep their car when declaring bankruptcy. Terms like thresholds, equity and wholesale value get thrown around, and it can be confusing for people in an already complicated situation.

Below, we have outlined in a straightforward manner how bankruptcy and vehicles works.

In short, when you declare bankruptcy you are allowed to keep a vehicle valued at $7800. If your vehicle is over that value, the trustee may want to take the vehicle and sell it in order to repay your creditors. The situation changes if your car is under finance through, so we have outlined a few scenarios below:

1.
Your vehicle is worth under $7800, and you don’t owe any money on the vehicle.
In this instance, you can keep the vehicle.

2.
Your vehicle is worth over $7800, and you don’t owe any money on the vehicle
Here, the trustee would want to sell your car and pay back your creditors. Sometimes vehicles are worth considerably less than clients think, so we find it useful for people to go and get a quote from a car yard to prove the value if they want to keep the vehicle.

3.
Your vehicle is worth over $7800, and you owe money on the vehicle.
This is where it gets a little complicated. The $7800 threshold still applies, but only applies to the equity you have in the vehicle. For instance, if your car is worth $25,000, but you still owe $20,000 on the car loan, then you only have $5000 equity in the asset. That would mean you are under the threshold and as long as you are willing to continue paying that car loan, then you can keep the car when declaring bankruptcy.

Alternatively, if your car is worth say $25,000 and you owe $35,000 you have 2 options. The first option is to continue paying for the car after bankruptcy and keep the asset. As you have negative equity in the vehicle, you are in no danger of breaching the threshold.

You can also give the car back to the creditor after declaring bankruptcy at any point, and it will remove the entirety of the debt to your creditor. Normally, when you surrender a vehicle to a creditor they will sell the vehicle and subtract the value from your loan. So if they sell your car for $23,000, you would be left with the $12,000 shortfall in this case. Bankruptcy would remove that shortfall, as the debt is now unsecured.

If you are unsure of the value of your vehicle, or unsure how to proceed, feel free to give us a call on 03 9452 6900 and discuss your situation. We can organise that you keep your car in certain circumstances, or make sure that the debt is removed after bankruptcy.