Change to bankruptcy guidelines on vehicles

When you go bankrupt, you’re only allowed to keep a vehicle if it’s deemed essential. And even then, it must be of low value.

Until the end of last month, you would usually have to sell a vehicle worth more than £2,000 and replace it with a cheaper alternative. But on 28 June, the guide price for a replacement vehicle was increased to £3,250.

What will happen if my vehicle is worth more than £3,250?

If you’ve been told you’re allowed to keep a vehicle but the one you’ve got is worth more than £3,250, it’s likely to be sold.

The official receiver will use up to £3,250 of that money to buy you an alternative vehicle or give you that amount so you can buy one yourself. You’ll need to provide proof that you’ve used the money to buy a new vehicle within one month.

When is a vehicle classed as essential?

Your vehicle may be classed as essential if you:

• or a member of your family need it due to a disability
• couldn’t do your job without it
• couldn’t get to work or school without it

If you could use public transport or a taxi to get about, your vehicle may not be classed as essential.

What if I have a vehicle under a finance agreement?

If you have a vehicle under a hire purchase or conditional sale agreement, you may be allowed to keep it and carry on making payments if it’s deemed essential.

If the agreement ends before you’re discharged from bankruptcy, ownership will pass to the official receiver. At that point, they may sell it or let you keep it. This will depend on the value.

Your agreement may include a clause allowing the lender to repossess it if you go bankrupt. Some lenders may allow you to keep the vehicle, despite this.

Permitted vehicle value for a DRO

The change to the bankruptcy guidelines coincides with an increase in the permitted value of a vehicle from £2,000 to £4,000 for those applying for debt relief orders (DROs).