Bankruptcy has a big effect on your ability to borrow, and there are legal rules on borrowing while you’re bankrupt. Car finance after bankruptcy is possible for some people, especially after discharge, but it usually means fewer lenders and higher rates. This guide explains the rules and what to expect.
In short
While you’re bankrupt, you must tell any lender you’re bankrupt if you want to borrow more than £500, so most car finance is off the table until you’re discharged, usually after 12 months. Bankruptcy stays on your credit file for six years from the date it started. Some specialist lenders consider applicants after discharge.
Can you get car finance while bankrupt?
It’s very difficult. While you’re bankrupt, it’s a criminal offence to borrow more than £500 without telling the lender you’re bankrupt (The Gazette). Most lenders won’t lend to someone who’s currently bankrupt.
If you need a vehicle for work, speak to your trustee (often the Official Receiver) first. They can explain what’s allowed.
What happens to a car you already have on finance?
If you have a car on HP or PCP when you go bankrupt, the lender owns it until the agreement is paid off. The lender may decide to take it back. If you can keep up the payments, and especially if you need the car for work, talk to your trustee and the lender about whether you can keep it.
When does bankruptcy end?
In England, Wales and Northern Ireland, you’re usually discharged after 12 months, as long as you cooperate with your trustee. In Scotland, bankruptcy is called sequestration and is also usually discharged after a year.
Restrictions can last longer if a Bankruptcy Restrictions Order or Undertaking is made, typically for between two and 15 years.
How long does bankruptcy stay on your credit file?
Six years from the date it started, even though you’re usually discharged after one year. Lenders will see it during that time.
Car finance after discharge
Once you’re discharged, the £500 borrowing restriction ends (unless restrictions have been extended). Some specialist lenders will consider you, usually looking at:
- How long ago you were discharged
- Your income and affordability now
- Your record since discharge, such as rent and bills paid on time
- A deposit, if you have one
Important
Expect higher interest rates and a lower borrowing limit. Make sure the payments fit comfortably within your budget, and compare the total amount payable.
Rebuilding your credit after bankruptcy
- Check your credit files show the bankruptcy as discharged, and that old debts are recorded as included in it.
- Register on the electoral roll.
- Open a basic bank account and keep it in good order.
- Use a small credit product you can repay in full each month, if appropriate.
- Save a deposit for your next car.
Alternatives to consider
- Buy a cheaper car with savings after discharge.
- Wait until the bankruptcy is older on your file.
- Free debt advice from StepChange, MoneyHelper or Citizens Advice.
See bad credit car finance and car finance with an IVA for related guides.
Bankruptcy car finance FAQs
Can I get car finance while bankrupt?
Rarely. You must tell any lender you’re bankrupt if you borrow more than £500, and most won’t lend. Speak to your trustee first.
How soon after discharge can I get car finance?
Some specialist lenders consider applicants soon after discharge, but options improve the longer it’s been and the better your record since.
Will I lose my car if I go bankrupt?
If it’s on finance, the lender may take it back. If you own it outright and it’s worth a lot, your trustee may sell it, though you may be allowed a modest vehicle if you need it for work. Ask your trustee.
Does a Debt Relief Order have the same rules?
A Debt Relief Order has a similar £500 borrowing restriction while it’s in place, usually for 12 months, and stays on your credit file for six years.
Is bankruptcy different in Scotland?
Yes. It’s called sequestration, with its own rules, but discharge is usually after a year and it stays on your credit file for six years.