Can I keep my car if I enter into a Debt Agreement?
By Administrator 05 August, 2013
Entering into a Debt Agreement will not always mean that you will have to sell your car but given many different scenarios can arise each case needs to be reviewed individually. At Debt Free Australia we offer a free debt assessment.
Let explore some of the more common situations we come across.
What happens if my car is leased?
If you have a leased car and you want to keep it, then most people simply continue to pay the lease payments in the ordinary course. When we help you prepare a Debt Agreement proposal we will first prepare a budget to make sure that you can continue to pay for all of your existing financial commitments as well as your debts.
If you have no equity in your car or negative equity in it (meaning the amount outstanding on the lease exceeds the value of the car) then you have 2 choices:
- I want to keep my car – If you want to keep your car all you need to do is to simply keep paying the lease payments in the ordinary course. What you need to be mindful of is whether a “balloon payment” or “residual payment” will become payable during the Debt Agreement. This may create an issue as you will need to either “refinance” the lease or pay it out. If you have negative equity in the lease at the time that you enter into the Debt Agreement, the leasing company would be entitled to claim for dividends from your Debt Agreement for the “estimated shortfall”. This may affect the estimated dividend to your unsecured creditors.
- I want to sell my car– If you don’t want to keep your car (due to the negative equity in it) then you should surrender it to the leasing company prior to entering into your Debt Agreement. This way, you will be able to include any “actual shortfall” from the sale of the car in your Debt Agreement. Going down this path will eliminate all of your debts and will allow you to start afresh. Of course, many factors need to be taken into account before you would consider this – for example:
- Can you afford to buy a car outright if you surrender your leased car?
- It is unlikely you will be able to lease another car until your Debt Agreement is successfully completed.
Is there a limit on the value of the car I can have?
The value of your car or your combined assets (including the equity on your house) cannot exceed $103,121.20. If the equity in your combined assets exceed this amount then you would need to consider a Personal Insolvency Agreement instead.
Can I sell my car later?
If you wish to sell your car after you have entered into a Debt Agreement, then you will be free to do so.
If your car is leased it is unlikely you will be able to lease another car until your Debt Agreement has been successfully completed. Whilst you are subject to a Debt Agreement you can’t apply for credit exceeding $5,259, without disclosing to the party that you are in a Debt Agreement.
Will my car be protected under the Debt Agreement?
Once you enter into a Debt Agreement you will be protected against any legal action your unsecured creditors may wish to take. This means that they will be prevented from commencing any bankruptcy proceedings against you or obtaining any type of writ against your car. As long as you fully comply with the terms your Debt Agreement (i.e. you make the payments as required) you will be legally protected.
This is one of the biggest advantages of entering into a Debt Agreement compared to bankruptcy.
If you have a car (either leased or owned outright) and want to protect it, then give us a call. Debt Free Australia are industry leaders in personal insolvency services. We won’t charge any fee until we have fully assessed your case and have confirmed that a Debt Agreement is the best solution for you. Call us now on our toll free line 1800 676 598.