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Car finance ›
What happens if you go bankrupt with outstanding finance?
Updated: Monday, 24 July 2023
When going through bankruptcy, there will be lots of things you will need to consider. It’s something that affects almost every aspect of your life. It’s a stressful experience if you have outstanding car finance as you might need the car to get around or commute to work.
This guide will walk you through everything you need to know about going through bankruptcy with outstanding car finance. We’ll look at what happens to your car, if you can carry on paying your car finance, and the support available if you’re experiencing financial difficulties.
What happens to your car finance after going bankrupt?
Car finance is secured against your vehicle. Secured debt is not automatically written off in bankruptcy, if the official receiver is happy for you to keep your car, you can continue to pay off your car finance balance.
When you declare bankruptcy, you’ll provide information on the value of your car. To work this out, you need to subtract the outstanding finance amount from the car’s value.
According to StepChange, you may be ordered to sell the vehicle if the value is over £1,500 if you live in England and Wales. If you live in Northern Ireland, different limits might apply.
Please note that it depends on the view of the official receiver. The official receiver may allow you to continue making car finance payments if the vehicle is essential.
This means you’ll often be able to keep paying off your car finance agreement as long as the monthly payments are affordable for you. However, some lenders include a clause that ends the agreement if you declare bankruptcy. Make sure you check your contract or ask your lender.
If you are a Moneybarn customer experiencing financial difficulty or are going to declare bankruptcy, please contact us and we can discuss your options.
There are some not-for-profit debt organisations that can help. StepChange offers a freephone debt advice service, and MoneyHelper has plenty of free money tools and information to help organise your finances.
Can you keep your financed car after declaring bankruptcy?
If you have an outstanding balance on your vehicle and declare bankruptcy, what happens to your car is up to the official receiver in charge of your bankruptcy. It all boils down to how important they think it is that you keep your car.
The main reasons an official receiver will usually allow you to keep your car are:
- A member of your household relies on your vehicle because of a disability
- You’re unable to commute to work or place of education without your car.
These are some of the reasons the official receiver might deem essential. If being without your car would simply be inconvenient, you might not be able to keep your vehicle.
For example, if you live near a bus stop that can get you from point A to B, then the official receiver may decide that your car isn’t essential. If no public transport is within easy reach of your home, then the car may be considered essential.
If you pay off your car finance while going through bankruptcy, the ownership of the vehicle will usually pass on to the official receiver. Find out what might happen if you don’t pay your car finance with help from our guide.
Can you take out car finance after declaring bankruptcy?
It’s much harder to get car finance after bankruptcy. This is because bankruptcy significantly impacts your credit score. This means many car finance companies will be unwilling to give you car finance.
How to get car finance after declaring bankruptcy
The best way to improve your chances of getting car finance after bankruptcy is to improve your credit score. Here are some tips on how to do this:
- Make sure all your payments are on time. A good payment history makes you seem more reliable to lenders
- If you’re not already, then register for the electoral roll. Lenders view this as a sign of your stability
- The bankruptcy will stay on your credit report for six years from the date it was arranged. Once it has been removed, your credit score should start rising.
Once your credit score starts to improve, there are other steps you can begin taking:
- Don’t make too many applications. Some finance companies carry out hard searches when you apply. Too many of these will negatively affect your credit score.
- Pay a larger deposit if you can. This means you’ll have to borrow less, and you’ll be seen as a lower risk. It also usually means your repayments will be lower.
Frequently asked questions about bankruptcy and car finance
Do I need to tell my car finance company if I go bankrupt?
If you are experiencing financial difficulty, your car finance lender should be able to offer some support. You should notify them if you are planning to declare bankruptcy.
Will my car be seized if I declare bankruptcy?
Your financed car will not necessarily be seized if you declare bankruptcy. Some lenders will be happy for you to continue your car finance payments, if you can realistically afford them. Other car finance lenders will have a clause in your contract that says you must return your car if you are declared bankrupt.
Will declaring bankruptcy write off car finance debt?
While declaring bankruptcy can write off some debts, such as credit cards, overdrafts, and utility arrears, it will not write off car finance debts. This is because car finance is a type of secured loan, and secured loans are generally not written off when you declare bankruptcy.
When going through bankruptcy, there will be lots of things you will need to consider. It’s something that affects almost every aspect of your life. It’s a stressful experience if you have outstanding car finance as you might need the car to get around or commute to work.
This guide will walk you through everything you need to know about going through bankruptcy with outstanding car finance. We’ll look at what happens to your car, if you can carry on paying your car finance, and the support available if you’re experiencing financial difficulties.
What happens to your car finance after going bankrupt?
Car finance is secured against your vehicle. Secured debt is not automatically written off in bankruptcy, if the official receiver is happy for you to keep your car, you can continue to pay off your car finance balance.
When you declare bankruptcy, you’ll provide information on the value of your car. To work this out, you need to subtract the outstanding finance amount from the car’s value.
According to StepChange, you may be ordered to sell the vehicle if the value is over £1,500 if you live in England and Wales. If you live in Northern Ireland, different limits might apply.
Please note that it depends on the view of the official receiver. The official receiver may allow you to continue making car finance payments if the vehicle is essential.
This means you’ll often be able to keep paying off your car finance agreement as long as the monthly payments are affordable for you. However, some lenders include a clause that ends the agreement if you declare bankruptcy. Make sure you check your contract or ask your lender.
If you are a Moneybarn customer experiencing financial difficulty or are going to declare bankruptcy, please contact us and we can discuss your options.
There are some not-for-profit debt organisations that can help. StepChange offers a freephone debt advice service, and MoneyHelper has plenty of free money tools and information to help organise your finances.
Can you keep your financed car after declaring bankruptcy?
If you have an outstanding balance on your vehicle and declare bankruptcy, what happens to your car is up to the official receiver in charge of your bankruptcy. It all boils down to how important they think it is that you keep your car.
The main reasons an official receiver will usually allow you to keep your car are:
- A member of your household relies on your vehicle because of a disability
- You’re unable to commute to work or place of education without your car.
These are some of the reasons the official receiver might deem essential. If being without your car would simply be inconvenient, you might not be able to keep your vehicle.
For example, if you live near a bus stop that can get you from point A to B, then the official receiver may decide that your car isn’t essential. If no public transport is within easy reach of your home, then the car may be considered essential.
If you pay off your car finance while going through bankruptcy, the ownership of the vehicle will usually pass on to the official receiver. Find out what might happen if you don’t pay your car finance with help from our guide.
Can you take out car finance after declaring bankruptcy?
It’s much harder to get car finance after bankruptcy. This is because bankruptcy significantly impacts your credit score. This means many car finance companies will be unwilling to give you car finance.
How to get car finance after declaring bankruptcy
The best way to improve your chances of getting car finance after bankruptcy is to improve your credit score. Here are some tips on how to do this:
- Make sure all your payments are on time. A good payment history makes you seem more reliable to lenders
- If you’re not already, then register for the electoral roll. Lenders view this as a sign of your stability
- The bankruptcy will stay on your credit report for six years from the date it was arranged. Once it has been removed, your credit score should start rising.
Once your credit score starts to improve, there are other steps you can begin taking:
- Don’t make too many applications. Some finance companies carry out hard searches when you apply. Too many of these will negatively affect your credit score.
- Pay a larger deposit if you can. This means you’ll have to borrow less, and you’ll be seen as a lower risk. It also usually means your repayments will be lower.
Frequently asked questions about bankruptcy and car finance
Do I need to tell my car finance company if I go bankrupt?
If you are experiencing financial difficulty, your car finance lender should be able to offer some support. You should notify them if you are planning to declare bankruptcy.
Will my car be seized if I declare bankruptcy?
Your financed car will not necessarily be seized if you declare bankruptcy. Some lenders will be happy for you to continue your car finance payments, if you can realistically afford them. Other car finance lenders will have a clause in your contract that says you must return your car if you are declared bankrupt.
Will declaring bankruptcy write off car finance debt?
While declaring bankruptcy can write off some debts, such as credit cards, overdrafts, and utility arrears, it will not write off car finance debts. This is because car finance is a type of secured loan, and secured loans are generally not written off when you declare bankruptcy.
For a better road ahead
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
