What happens if own my car outright?

This is another advantage of entering into a Debt Agreement compared to bankruptcy. If you own a car outright then you will be able to keep it if you enter into a Debt Agreement providing that you disclose the value of it in your Debt Agreement Proposal.

Compared to bankruptcy you are only allowed to keep a car if it is valued at less than $7,900. So if your car is valued at more than $7,900 then you would have to surrender it to your Trustee in Bankruptcy, who would then sell it and hand back to you the protected amount of $7,900 . The Trustee in Bankruptcy would keep any balance over the protected amount of $7,900 for the benefit of your creditors. You would then be free to go and buy a cheaper car worth up to $7,900. This would of course be very inconvenient, so if you have a car which is worth more than $7,900 and you have unsecured debts which you need to be settled then a Debt Agreement clearly has an advantage compared to bankruptcy.

What about if I have a car under finance?

The same applies if you have a car under finance (i.e. it is leased). If the equity in your car is more than $7,900 then you would need to surrender it in bankruptcy. The equity is calculated as the difference between the value of the car and what is owed on the loan. If the amount outstanding on the loan exceeds the value of the car, then there is no equity and the leasing company has the option to claim for the shortfall in the Debt Agreement.

If you wish to keep the car whilst you are in the Debt Agreement then leasing companies are usually happy for you to keep the car and don’t always claim for any shortfall on the strict proviso that you keep up to date with the lease payments. Obviously if you don’t keep the car repayments up to date the leasing company will repossess the car.