Do you have to sell your car if you go bankrupt or into an IVA?

Most people who ask us this have already had the conversation with a debt adviser and come away unsure. The short answer is that it depends on what the car is worth and whether you genuinely need it, and the rules are different for bankruptcy and for an IVA.

Here is how it actually works, and what to do about it if the answer turns out to be yes.

Bankruptcy: the Official Receiver decides

When you are made bankrupt, your assets pass to the Official Receiver. A car is an asset.

You can usually keep a vehicle if you genuinely need it, which normally means you need it for work, or someone in your household needs it because of a disability or a health condition, or there is no realistic public transport where you live. The Official Receiver will ask whether a bus, a train or a taxi would do instead, so "it is more convenient" is not going to carry it.

Where value comes in is the guide figure, which since June 2024 has been £3,250. If your car is worth meaningfully more than that, expect the Official Receiver to sell it and give you up to £3,250 back to buy something cheaper. You do not lose your transport, you lose the difference between what you had and what £3,250 buys.

That figure went up from £2,000, which is worth knowing if you were told otherwise by somebody working from older guidance.

An IVA: your Insolvency Practitioner decides

An IVA works differently. Nothing passes to anyone. Your Insolvency Practitioner puts a proposal to your creditors, and what happens to the car is part of that proposal.

There is no fixed statutory figure here. In practice a modest car you need for work is rarely a problem, and an expensive one usually is, because your creditors will reasonably ask why you are driving something worth several thousand pounds while paying them a reduced amount each month. Where there is significant value in the vehicle, your IP may want it sold and replaced with something cheaper so the difference goes into the arrangement.

The practical point is that this is a conversation with your IP, not a rule you can look up. Have it before you do anything, because selling a car without telling them is the kind of thing that causes real problems later.

If the car is on finance or a lease

If you do not own it outright, you cannot sell it. That sounds obvious and it catches people out constantly.

On hire purchase or conditional sale, the finance company owns the car until the last payment. You may be able to keep making payments if the vehicle is essential, but most agreements contain a clause letting the lender terminate on bankruptcy, so it is their call.

On a lease or contract hire, the car was never yours at any point. It belongs to the leasing company and the agreement will say what happens.

Check the paperwork before you assume you have an asset to sell. If there is outstanding finance and the car is worth less than the settlement figure, selling it privately without settling first is not just unwise, it is a breach of the agreement.

Selling before somebody decides for you

Plenty of people arrive at this site before any of the above, because they can see it coming. Arrears building, a payment they cannot make next month, a car worth more than they can justify.

Selling on your own terms is almost always better than a repossession. You choose the timing, you get a market price rather than an auction price, and a voluntary sale does not appear on your credit file the way a default and a repossession do. If you are heading towards an insolvency solution anyway, having sold sensibly beforehand puts you in a better position than having it done to you.

Getting a decent price when you are in a hurry

Time pressure costs money, so a few things worth doing even if you have got a week.

Get more than one valuation. The spread between buyers on the same car is routinely several hundred pounds and occasionally more.

Have the paperwork ready. V5C, service history, MOT certificates, both keys. Missing keys alone can knock a couple of hundred pounds off an offer.

Clean it and take good photographs in daylight. It sounds trivial and it moves the number.

Get the outstanding finance settlement figure in writing before you agree anything, so you know what you are actually walking away with.

Be honest about faults. Every buyer inspects, and a fault found on inspection costs more than one declared up front, because it changes how the buyer feels about everything else you said.

The bit nobody warns you about: getting another car

This is the part that catches people, and it is the reason we have written this article.

Selling the car is the easy half. Getting another one afterwards is where people come unstuck, because the same event that forced the sale has now put a mark on your credit file that will sit there for six years. Mainstream leasing companies and finance houses score you in about four seconds and decline you, and nobody ever explains why.

A few things worth knowing before you assume you are stuck with whatever £3,250 buys.

If you have been made bankrupt, you are normally discharged after twelve months, and leasing becomes possible again once you are discharged even though the bankruptcy itself stays on your file for six years from the date of the order. The mainstream companies will keep saying no for those six years. Not everybody will.

If you are in an IVA, you are not automatically shut out either, but there is an order to it. Your Insolvency Practitioner has to agree, and they generally cannot consider it in the abstract, so you need a real offer on a real car at a real monthly figure before you go to them. That sequencing is why so many people conclude leasing during an IVA is impossible when it is not.

And if it is CCJs, defaults or missed payments rather than a formal insolvency, the picture is better than most people expect, provided the trouble is behind you rather than still running. There is a longer explanation of what your options actually look like with a damaged credit file that is worth ten minutes.

Fresh Start Car Leasing is a sister site of ours. They assess affordability from bank statements before running any credit check, which is a slower way of doing it and the reason they can help people the big companies decline.

Get proper advice on the debt itself

Nothing above is debt advice and we are not qualified to give it. If you are weighing up bankruptcy or an IVA, talk to somebody free and independent before you commit to anything:

• StepChange, stepchange.org
• MoneyHelper, moneyhelper.org.uk
• Citizens Advice, citizensadvice.org.uk

All three are free. None of them will sell you anything.

Selling your car

If you have decided to sell, or you have been told you have to, we will give you a valuation and buy it. No haggling, no obligation, and we will tell you if you would do better elsewhere.

Ready to sell your car?

Enter your registration below to get a free, no-obligation valuation from our local Southampton team.

More Advice & Guides