Debunked: Keeping Your Ship Steady – Retaining Your Car in Bankruptcy

The fear that declaring bankruptcy means losing your car is not entirely grounded in fact. In Australia, bankruptcy laws include provisions that allow individuals to retain personal assets, including vehicles, under certain conditions. These rules ensure you can maintain essential transportation needs without undue hardship.

Vehicle Value Threshold: Setting Sail with Protected Assets

Under bankruptcy law, you can keep a vehicle used primarily for transport if its value remains below a set threshold. As of the last update, the threshold is $7,900, but make sure to check the AFSA website for the most current threshold amount. This threshold is adjusted periodically to reflect changes in economic conditions. It ensures that basic transportation needs—like commuting to work or transporting family members—are not compromised. If the value of your car falls below this threshold, it is shielded from being claimed by your bankruptcy trustee.

Equity in the Vehicle: Navigating Your Financial Waters

The relevant value threshold applies to the equity you hold in the vehicle, not merely its market value. Equity is the car's value minus any debts secured against it, such as a car loan. If your equity is below the threshold, you can keep your car. If it exceeds the threshold, the trustee may require you to address the excess, potentially through selling the car or offering a payment to retain it.

Continuing Finance Payments: Keeping Your Vessel Afloat

If your car is financed and you wish to retain it, you must continue making the necessary payments to the finance company. Failure to maintain these payments can lead to the finance company repossessing the car, a situation independent of your bankruptcy status.

Replacement Vehicles: Charting a Course with New Assets

Should you decide to sell or trade in your vehicle during bankruptcy, you can reinvest the proceeds in a replacement vehicle as long as its value doesn’t surpass the preset threshold. It’s important to keep your trustee informed of any changes to your vehicle’s status or ownership to ensure compliance with bankruptcy regulations.

Leased or Hired Vehicles: Smooth Sailing with Rentals

Vehicles that are leased or hired under a legitimate lease agreement are not considered assets in your bankruptcy estate. This means you can continue to use a leased or hired vehicle as long as you adhere to the lease or hire terms, which includes making regular payments.

Conclusion: Steering Through Bankruptcy Without Losing Your Car

Bankruptcy does not automatically result in the loss of your car. The laws aim to balance the need to satisfy creditors with the bankrupt individual's need to maintain a reasonable standard of living, which includes transportation. If your vehicle's value is beneath the specified threshold and you continue to meet any associated finance payments, you should be able to retain your car during bankruptcy. For clarity on how these rules apply to your situation, it’s wise to consult with a bankruptcy trustee to navigate the relevant regulations and thresholds effectively.