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).

Also see below for some  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 (use redbook.com or similar) 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 your primary 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:

  • We call this a shortfall.
  • You can list this in your bankruptcy.
  • The creditor can no longer pursue you for this debt.

Frequently asked questions

My partner and I mutually 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 who's name the loan is in.
  • 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[?].

Please review the Official Trustee Practice Statements OTPS 1- Income contributions for more information.

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