Can I get car finance if I’ve been declared bankrupt?

When you’re in severe financial difficulty and don’t know where to turn, bankruptcy can often be the only way forward.

It’s a serious financial decision and never an easy one to make.  

While declaring bankruptcy can help you clear your debts and start fresh, it can affect your ability to get finance in the future. It can also mean saying goodbye to many of your assets as they’re often sold off to repay your debts.
 
If you’ve made the difficult decision to declare bankruptcy, it doesn’t mean any dreams of being a car owner are over forever.
 
You might not be able to get finance to buy a car during your bankruptcy period, but once it’s discharged, there are lenders who specialise in helping people with less than perfect payment histories get back behind the wheel.
 
Read on to learn more about how bankruptcy can impact your car finance eligibility in both the short and long-term:

What is bankruptcy?

Bankruptcy is a type of insolvency. If you’re struggling with your finances and your debts have got out of control, you can declare bankruptcy to wipe the slate clean and start over.
 
Most bankruptcy periods will last for at least 12 months. During this time, your creditors can’t take any further action against you (phew), but your assets can be seized and sold off to help repay your outstanding debts.
 
Once the 12 months has elapsed, you can be discharged from bankruptcy. Keep in mind though that your bankruptcy can stay on your credit report for up to six years.

Can I get car finance after being declared bankrupt?

During your bankruptcy, you’ll have to abide by certain rules and regulations. Your personal finances will be restricted and it’s very unlikely that you’ll be able to apply for car finance or buy a new set of wheels at all (even buying in cash could prove difficult)  
 
In fact, you’ll likely be limited to loans of less than £500. You’ll also need to get permission from your bankruptcy receiver before submitting any applications and let any prospective lenders know that you’re bankrupt. All these factors combined will make it almost impossible to get back on the road during that 12-month period.
 
Once your bankruptcy has been discharged, you’ll need to be patient for a little while longer as you must wait another full year before applying for finance.
 
Even so, your credit score will still need some serious TLC and you might need to seek help from a specialist lender to secure a loan. You can also start taking steps to improve your credit score and increase your chances of finding an approval in principle.

What happens to my car if I’ve been declared bankrupt?

Saying goodbye to your pride and joy can be one of the most difficult parts of declaring bankruptcy, but it doesn’t always have to be part of the process. It all depends on your individual circumstances.
 
If you bought your car with a type of finance like Hire Purchase (HP) or Personal Contract Purchase (PCP), you might find that the lender has included a clause in your agreement. This will usually state that, if you declare bankruptcy, the car must be returned to them.
 
Own the car outright? Whether you’ve settled your finance or bought your wheels in cash, it may be at risk of repossession and could be sold to help pay off your debts.
 
There are some circumstances that mean you might be allowed to keep your car – or at least trade it in for a cheaper model. This will usually be the case if you need your car to get to and from work, you or your children need a vehicle to finish their education, or if you or someone in your household has a disability.

How will it impact my credit score?

We won’t sugar coat it; being declared bankrupt will hurt your credit score and limit your chances of securing finance in the future. It’s solid proof, after all, that you’ve had problems paying your debts in the past.
 
There’s no judgement here; we know there are a whole host of reasons why you might fall behind with your debt repayments, often through no fault of your own. Unfortunately, lenders can only use your past behaviour to predict how you might act as a borrower (unless they have an in-house clairvoyant!)
 
If you’ve been declared bankrupt in the last six years, lenders might be concerned that you’ll default on your new loan too, meaning you’ll need to seek out a specialist to get the approval you need.

How long until my bankruptcy doesn’t affect my credit?

Once you’ve been declared bankrupt, it will stay on your credit report for up to six years. Its negative impact could last even longer, but the good news is that you can take steps to boost your credit score as soon as your bankruptcy is discharged.
 
Your credit score could start to be rebuilt if you:

• Register on the electoral roll
• Limit the number of new credit applications you make
• Make any new payments on time
• Keep your overall credit utilisation low
• Check your credit report regularly