What happens to my vehicle?

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What happens to my vehicle?

Bankruptcy doesn’t stop you owning a vehicle, but it does have some restrictions. Your trustee may request information about your vehicle, such as its value and if you owe any money against it.

There are 3 points you need to satisfy to keep your vehicle:

  1. The value of the vehicle is below a set amount.
  2. The vehicle is your primary means of transport.
  3. You maintain repayments on your vehicle (if it is under finance).

See below for  frequently asked questions about vehicles in bankruptcy.

The value of the vehicle is below a set amount

If your vehicle falls above the set amount (threshold) in value, your trustee may claim it. If you have more than one vehicle, the combined equity value must be below the set amount.

What does the trustee do when they claim a vehicle?

The trustee is able to sell the vehicle/s. They use the money they receive from the sale to help pay your debts. Your trustee would then refund you the allowable limit.

Value of your vehicle

Your trustee bases the set amount on the equity you have in the vehicle.

Equity is the portion that you own. The set amount is the amount in value you're allowed for a vehicle during bankruptcy. The set amount is a changeable threshold.

To estimate how much equity you have in your vehicle

Take the market value and subtract any amount you owe for the vehicle loan.

For example: Sarah borrowed $3,000 from a bank to help buy a motorcycle. The value of the motorcycle is $5,000.

$5,000 (value) - $3,000 (debt) = $2,000 (equity value)

The vehicle is your primary means of transport

The vehicle needs to be used by you primarily as a means of transport. This can include various types of vehicles such as:

  • car
  • motorcycle
  • scooter
  • truck
  • trailer
  • bicycle or
  • boat.

This doesn't include caravans, motorhomes and campervans. Your trustee can sell these even if they are under the equity set amount.

Your trustee can claim vehicles that you don't use primarily for transport. For example, you own an unregistered motorbike as a collector’s item. 

You maintain repayments on your vehicle (if it’s under finance)

You may have agreed to use the vehicle as security for a loan. We call this a secured debt.

If you fall behind in loan repayments, the secured creditor is able to repossess and sell the vehicle. You need to contact your secured creditor (such as bank or lender) to discuss what you intend to do.

If the creditor sells your vehicle and you still owe them money, this is called a 'shortfall'. You can list this in your bankruptcy. The creditor can no longer pursue you for this debt.

Case study: Ben

Secured car debts in bankruptcy

Ben is a 31-year-old delivery driver. They live in Launceston, Tasmania and earns $55,000 per year. They have credit card debts of about $48,000.

Ben is paying off a 2011 Holden Combo van worth $10,000. To buy it, they borrowed money from Island Bank, who registered a security over the van on the Personal Property Securities Register. Ben currently owes Island Bank $9,000.

Ben finds their debts crippling. They have done some research and thinks bankruptcy would be their best option.

Before filing for bankruptcy, they complete AFSA's bankruptcy consequences tool and then creates an Insolvency Services account so they can apply online.

Ben’s main concern about going bankrupt is that they do not want to lose their van. They need this for their job. They do not want to put details of the van and the loan on their Bankruptcy Form. Ben rings AFSA to get more information. AFSA tells Ben that it’s important to list all their debts and assets on their Bankruptcy Form and there are penalties for not doing so. They also tell Ben that if they forget to include any debts, they must tell their trustee as soon as they becomes aware of them.

AFSA tells Ben that the trustee will decide whether to take their van based on its ‘equity’. The ‘equity’ is how much the van is worth, minus what is owed to the secured creditor (Island Bank). Ben’s van is worth $10,000 and they owe $9,000. The equity in their van is $1,000 which is below the limit*. In this instance, the trustee cannot claim the van. If they stop paying off the loan, however, Island Bank could repossess the van.

If Ben’s situation changes in the future and they can no longer keep up the loan payments, Ben could surrender the van to the bank. If this did happen, any money still owing on the loan would be covered by their bankruptcy, and Island Bank could not pursue Ben for the debt.

*The limit is updated each financial year. You can find the latest limits at Indexed Amounts

*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.

Frequently asked questions

My partner and I jointly own our vehicle, what happens?

If you own a vehicle with another person you can have equity, to a set amount, in your share.  For example, the equity value of your car is $12,000. You own 50% of the car. This would mean that the equity value in your share is $6,000.

If your share is worth more than the set amount, your trustee may do any of the following:

  • claim and sell the vehicle
  • ask the co-owner to purchase your share
  • sell the vehicle and divide the proceeds between the co-owner and trustee.

Can I buy a vehicle while I'm bankrupt?

Yes. As long as it’s under the equity set amount. If you purchase a vehicle worth more than this, the trustee may claim this and sell it. If you get a loan to purchase the vehicle, you may need to tell the provider that you're bankrupt.

You need to pay any debts that you take on during and after your bankruptcy.

What happens if I use a vehicle owned by someone else?

There are a few things to consider when you use a vehicle that another person owns. Your trustee may establish ownership depending on the facts of your case.

Your trustee may look at the following when assessing whether you own the vehicle:

  • Look at the loan documents (if applicable) to see whose name the loan is in.
  • Look at where the money to buy the vehicle came from.
  • Talk to the owner about the vehicle's use and history. For example, if you got a car as a gift, the trustee views it as your car.
  • Search the Personal Property Securities Register (PPSR) to determine if there is any finance over the vehicle.

For a vehicle you jointly own, you may keep it if your share of equity is under the set amount. However, your trustee may consider you using someone else's vehicle as receiving a benefit. This benefit will form part of your assessable income. If this increases your income over the set amount, your trustee may require you to make compulsory payments. For more information see the Official Trustee Practice Statements - Income contributions.