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.
Note: 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.