Do I need to sell my car to pay my debts?
Do I need to sell my car to pay my debts?
Cars are often one of the most valuable assets we have in life, not just in terms of their financial value, but also for the role they play in our day to day routines and tasks.
Unsurprisingly, they are what people in debt most often want to speak about most when they seek advice. “What will happen to my car?” is a common question. The only question we hear more often, is “will I be able to keep my home?”.
The simple answer is, yes, you may have to sell your car, but most of our customers don’t. It depends on several factors.
One thing we can say with certainty is, getting advice won’t increase the risk of you having to sell your car, but ignoring financial problems is more likely to place it at risk.
Do you own the car?
The first question we always ask is do you own the car?
If you don’t own the car, then it won’t have to be sold to pay your debts, as it is not yours to sell.
This is even true if your car has been purchased using a Hire Purchase, Conditional Sale Agreement or a Personal Contract Purchase Plan (PCP), as you don’t own the car until the final instalment is made.
What this means is providing you can make the payments under the car finance agreement, then the car cannot be sold to pay your debts.
It also means if Sheriff Officers are sent out to attach property kept outside you home, then they cannot attach your car.
Even in a Protected Trust Deed or a Bankruptcy, the car will not be treated as an asset, providing it is subject to one of the above types of finance agreements; however, it also means that finance cannot be included in the debt solution and, must be paid in full, if you want to keep the car.
It is also important to maintain the payments to the car finance agreement or it’s likely the finance firm will try and repossess it.
What happens if you do own the car?
If you do own the car then the situation is different. The car is treated as an asset and it may be possible for it to be sold to pay your debts.
This is true even where you bought the car using a personal loan, as although you still owe that money, the difference is with this type of agreement you become the owner. You are not just renting or hiring the car.
However, this also means that Sheriff Officers can attach it to sell it, even if they are pursuing you for another debt, other than the personal loan.
It also means in a Bankruptcy or a Protected Trust Deed, your Trustee can treat your car as an asset and sell it.
Your own it, but what’s it worth?
Where you do own a car, the next question that must be asked is what’s it worth and why do you require it?
The reason for this is because, under Scots Law, cars that worth less than £3,000 are not treated as assets, providing you can demonstrate you have a reasonable requirement for the car.
This means it remains out of reach of the Sheriff Officers and Trustee in a Bankruptcy or Protected Trust Deed.
A reasonable requirement for a car can be anything, such as getting to and from work, or dropping and picking up the children from school; or going to the nearest shops if you live in a rural area or have a disability.
The difference is, however, when a personal loan is used to buy a car, the loan can be included in any debt solution and is dealt with by that solution. It may not even have to be repaid in full and you may still be able to keep the car.
You own the car and its worth more than £3,000
However, where you own a car and it is worth more than £3,000, this does not necessarily mean you will have to sell it.
In terms of the Debt Arrangement Scheme, Scotland’s formal debt repayment plan, which allows you to repay your debts in full, your car is never treated as an asset, unless you want to sell it.
Instead, the purpose of a Debt Payment Programme under the Debt Arrangement Scheme is to help you protect your assets whilst allowing you to repay your debts.
This is unlike the situation with Protected Trust Deeds and Sequestrations, where a Trustee must decide whether they will sell an asset to help raise funds to pay off the debts.
Even where a car is worth more than £3,000, a Trustee may still not sell a car, providing a reasonable requirement can be shown for it. Instead, they may agree to only value the vehicle at the end of the solution, when the value may at that point be less than £3,000. Alternatively, they may agree to let a third party, such as a friend or family member of the person in debt, buy out the value of the car that is above the £3,000, either by paying up the agreed amount or with a one-off payment.
Should you worry if you have a car and have problem debts?
We would say no you shouldn’t worry, but you do need to seek advice. Not seeking advice is more likely to put your car at risk.
Carrington Dean are Scotland’s leading Debt Advice Experts. If you want to speak with a Carrington Dean Money Adviser, call 0808 2085 195
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