Secured vehicles

Contributed by Ian Macdonald and current to 1 September 2005

Another thing that causes some people in financial difficulty to hesitate about bankruptcy is if they are very concerned to keep a car or truck which has some security on it, such as a mortgage. They fear that if they become bankrupt they will lose the vehicle.

The position in general is very similar to thatof a house with a mortgage on it. The main thing that determines the outcome is the amount of equity a person had in the vehicle. If, for example a vehicle is worth $20,000 and $10,000 is owing on it, the $10,000 equity becomes part of the bankrupt estate.

The trustee will usually take the vehicle and sell it and give $5,900 to the bankrupt if it was used mainly for transport by the bankrupt and put the balance into the bankrupt’s estate.

In more usual situations where the vehicle is worth less than the amount owing on it, the bankruptcy administration will not be interested in the vehicle. If the bankrupt can afford to keep up the payments he or she will be able to keep the vehicle. The Bankruptcy Act specifically prevents a lender moving against secured property just because the borrower is bankrupt. The lender can only take action to repossess the vehicle if the payments are not kept up, or there is some other breach of the contract, such as failing to insure it.