MOTOR VEHICLES AS EXEMPT PROPERTY
In order to assist in properly understanding the extent to which a bankrupt’s vehicle may be treated as exempt property, it will be useful to set out the provisions of the Act relating to exempt property, [note 1]:
The bankrupt’s estate comprises all property belonging to or vested in the bankrupt at the commencement of the bankruptcy except,
A motor vehicle should not be dealt with as property of the estate (and realised) if it appears to be exempt property under one of the provisions of the Act (see paragraph 30.121). This is the case even if bankrupt has not claimed the property as exempt through ignorance of the law. The risk in acting in this way is that the official receiver would have no defence [note 2] [note 3] to a claim that the vehicle had been wrongly seized.
In a case where a vehicle that, on the face of it, is exempt property but has not been claimed as such by the bankrupt, the provisions of the Act relating to exempt property should be drawn to the attention of the bankrupt. If he/she then cannot or does not make a valid claim (see paragraphs 30.124) for the vehicle to be treated as exempt, it may be disposed of normally (see Chapter 31.2, Part 3). The bankrupt’s statement that he/she does not wish to claim the vehicle as exempt should, of course, be recorded on the file and on the ICSIS assets tab.
The bankrupt may make a claim for a vehicle to be treated as exempt property during the initial interview, or by correspondence.
The bankrupt’s claim for a vehicle to be treated as exempt property need not be in writing, but should cover all relevant facts and be recorded on the file (perhaps, in the interview notes, narrative statement or a file note) and on the ICSIS assets tab.
The claim should be assessed following the guidance in this Part of the chapter.
Vehicles should not be treated as exempt property as a matter of course and a proper, active, decision should be taken in each case, taking into account the relevant facts and policies (such as those outlined at paragraph 30.127) and recording all relevant facts, events and decisions on the file and ISCIS assets tab (see paragraph 30.151).
If, following a claim to have a vehicle treated as exempt property, the decision is to treat the property as exempt, such decision should be recorded on the file in writing and on the ISCIS assets tab. The decision should be communicated to the bankrupt by issue of the standard letter [note 4].
Where the decision is taken to reject the claim and take the vehicle as property of the estate, such decision should always be notified to the bankrupt in writing, using the standard letter [note 5] recording the decision on the file and ISCIS.
For a vehicle to be treated as exempt property it must be necessary for use personally (see paragraph 30.128) by the bankrupt in his/her employment, business or vocation (see paragraphs 30.130 and 30.133), or necessary to meet the basic domestic needs of the bankrupt and his/her family (see paragraphs 30.135 to 30.138).
It is the bankrupt’s responsibility to satisfy the official receiver that this is the case, particularly that the vehicle is necessary, to the extent that no practical alternative exists, to meet a genuine need and not merely as a matter of convenience.
It would be expected that a vehicle be treated as exempt property to meet a domestic need (as opposed to an employment need) only in very limited circumstances (see paragraphs 30.135 to 30.138).
As outlined in paragraph 30.127, it is a requirement that the bankrupt satisfy the official receiver that the vehicle is necessary personally to him/her for it to be treated as exempt. This does not mean that the vehicle must be used exclusively by the bankrupt, but it must be necessary to him/her and not just necessary to others (where, for example, a spouse of the bankrupt needs it to get to/from work).
In considering whether the bankrupt is personally using the vehicle, the official receiver should consider the use to which the vehicle is put by the bankrupt and the frequency of that use (see paragraph 30.136). If the bankrupt is unable to demonstrate that the vehicle is used by him personally, or that the frequency of that use is low, the official receiver should give him/her the opportunity to introduce a third party to purchase the vehicle (see paragraph 30.140).
When considering whether to treat a vehicle as exempt property under the provision relating to use of the vehicle in the bankrupt’s employment, business or vocation, the principal points to be considered are:
It is not in the interests of the creditors of the bankrupt that the official receiver effectively puts the bankrupt out of the job market by removing one of his tools of employment. In circumstances where the bankrupt is unemployed or out of work, the official receiver can treat a vehicle as exempt if the bankrupt can satisfy the official receiver that:
As has been said earlier, the vehicle must be necessary to the bankrupt (see paragraph 30.127).
Where a vehicle requiring repair is claimed as exempt and the official receiver is minded to treat the vehicle as exempt, the official receiver should give the bankrupt 21 days to effect the repairs and provide evidence that the repairs have been effected. If such evidence is not supplied, the official receiver should realise the vehicle (following the guidance in Chapter 31.2 Part 3 or Part 4, as appropriate) as, clearly, a vehicle that is not working cannot be exempt property.
Caring for others clearly can be a vocation and the means by which an individual earns their living (nurses or care assistants, for example) and there seems no reason why caring for another who is, in fact, a relative should be treated any differently in principle. There are a considerable number of ‘informal’ and unpaid carers in the country who would describe their vocation as that of a carer. Many may be eligible for a Carer's Allowance, which is an allowance payable if the carer is occupied in caring for another for at least 35 hours per week .
A bankrupt might, therefore, not be in paid employment and have no prospect of obtaining employment as a result of having taken on the care of a disabled relative (including a child). To decide whether a vehicle should be treated as exempt on these grounds, it is necessary to decide if the bankrupt’s vocation is that of a carer (see paragraph 30.133).
In considering whether the bankrupt has a ‘vocation’ as a carer, material issues would be the time involved in undertaking the care, the receipt of a carer’s allowance (which are connected – see paragraph 30.132) and the level of care required.
The normal care reasonably expected of a parent for a child is not considered to be a vocation in this context, but a parent caring for a disabled child would fall into the category of having the vocation of a carer.
It is for the bankrupt to satisfy the official receiver that he/she is a carer.
Subject to the guidance in paragraphs 30.132 to 30.133, a vehicle may be treated as exempt if the official receiver is satisfied that the bankrupt is an informal, full-time carer for a disabled relative or friend (in other words, has the vocation of a carer – see paragraph 30.133) and who would use the vehicle in connection with that role.
A bankrupt may inform the official receiver that he/she has a disability and that his/her motor vehicle is necessary for mobility, or that the vehicle is necessary for domestic use (to take children to school, for example). The official receiver should treat such cases considerately, but where the bankrupt is unable to satisfy the official receiver that use of the vehicle is necessary (see paragraph 30.127) for his/her use personally (see paragraphs 30.128 and 30.137), he/she should nevertheless treat the vehicle as an asset of the estate (see paragraph 30.139).
As outlined in paragraph 30.127, it is for the bankrupt to satisfy the official receiver that the vehicle is necessary to meet a genuine need and not simply required as a matter of convenience.
For most journeys, a taxi service would offer an alternative to that of a private vehicle but, set against the costs of maintaining and running a modest vehicle, the use of such a service would be excessive if the required journey were a daily or frequent one. On the other hand, the task of undertaking the weekly shop may well be reasonably achieved cheaper by taxi than by owning and running a private vehicle.
Bankrupts who live in an urban area with reasonable public transport links are unlikely (other than in the case of disability –see paragraph 30.137) to be in a position to claim that a motor vehicle is exempt for domestic reasons alone.
Where a bankrupt’s disability prevents him/her from seeking employment, the bankrupt must satisfy the official receiver that the vehicle allows him/her a degree of independent living which would be impossible without the retention of a vehicle, and/or there is no practical alternative (taking into account he principles in paragraph 30.127) to allow for attendance at medical appointments or other care associated with the disability.
Where a bankrupt claims a vehicle as exempt property as it is needed to transport his/her children to/from school, he/she will need to demonstrate that there is no public transport alternative or that the distance to travel would make walking (or cycling) an impractical alternative. It is not sufficient for a bankrupt who lives in a rural area to claim a motor vehicle simply by virtue of distance from the school.
The bankrupt must provide a statement that there is no transport alternative (for example, a local authority school bus service) or, if there is more than one child, show that diverse locations makes it impossible to transport all the children to school by public transport. In deciding matters here, it should be noted that local authorities are required to provide free transport to school where a child under eight lives more than two miles from his/her school or where a child over eight lives more than three miles from his/her school.
There will be exceptions to this – for example, where a parent has made a decision not to sent their child to their catchment school the free transport provisions do not apply.
Practical problems such as organising children to walk to school, to travel with more than one child on public transport, or any general concerns about safety are simply matters of convenience and in such cases the vehicle is not necessary to meet a basic domestic need and the vehicle should be treated as an asset of the estate, following the guidance in paragraph 30.139.
If the use of a vehicle does not meet the test for necessity the vehicle is vested in the bankruptcy estate and the official receiver may realise the vehicle. This includes giving the bankrupt the option to have a third party make an offer for the vehicle (see paragraph 30.140).
(Amended May 2013)
Where the official receiver has taken the decision that a vehicle claimed as exempt by the bankrupt is not to be treated as such, he/she should enquire of the bankrupt whether any third party introduced by him/her wishes to make an offer for the official receiver’s interest in the vehicle to avoid the seizure and sale of the vehicle.
Where an acceptable offer is made agents will need to be instructed to undertake the sale. For further guidance on selling motor vehicles see Chapter 31.2 part 3 of the Technical Manual.
(Amended May 2013)
Where an exempt vehicle appears to have a significant value (see Chapter 31.2 paragraph 31.2.44), it is open to the official receiver to claim it for the estate if he/she considers the realisable value of the vehicle exceeds the cost of a reasonable replacement (see paragraph 30.145) [note 6]. The vehicle must be claimed by notice in writing no later than 42 days after it came to the notice of the official receiver as trustee (in most cases, this will be the day that the official receiver becomes trustee) [note 7]. Any notice after that time can only be served with leave of the court [note 8]. Any subsequent sale of the vehicle should be conducted in line with the guidance in Chapter 31.2 part 3.
The official receiver should not take any steps to claim an exempt vehicle unless he/she can be reasonably satisfied that there will be a net benefit to the estate in doing so, after taking into account any costs of sale and of a replacement vehicle (see paragraph 30.145).
When valuing the vehicle, the official receiver should take into account the value of any personalised registration mark attached to the vehicle (see Chapter 31.2, paragraph 31.2.74) and any outstanding (accrued) tax and insurance on the vehicle (see Chapter 31.2 paragraphs 31.2.70 and 31.2.71).
When considering whether to treat a motor vehicle as exempt, the official receiver should consider whether the insurance cost in relation to the vehicle makes its retention by the bankrupt viable – taking into account the amount allowed to the bankrupt to cover this expense (see Chapter 31.7 paragraph 31.7.124).
Similarly, the official receiver should not agree to any sale of the vehicle to a third party introduced to the bankrupt (see paragraph 30.140), if the bankrupt will not then be able to afford to insure the vehicle.
The nature of the bankrupt’s occupation should be considered when deciding if a vehicle has excess value (see paragraph 30.141). Where, for example, the bankrupt is a self-employed chauffeur (for example, of a wedding car) or where he/she is required to travel many miles in his/her job, a vehicle of a higher value may be allowed to be retained.
Equally, the sum of money provided to the bankrupt to allow him/her to buy a replacement vehicle (see paragraph 30.145) may be higher in these circumstances.
Where the official receiver takes a vehicle of excess value, he/she will be required to provide a replacement vehicle. The official receiver has limited discretion as to the amount allowed for the bankrupt to buy a vehicle sufficient for his/her needs.
For consistency between official receivers’ offices the amount to be available should be in the region of £1,000 unless a suitable replacement cannot be purchased for that amount. Generally, this figure should be adhered to except in exceptional circumstances - for example, due to the nature of the bankrupt’s employment (see paragraph 30.144) or the size of his/her family,.
It will be up to the bankrupt to find a vehicle suitable for his/her needs within the budget set by the official receiver (see paragraph 30.145). The official receiver will not directly provide the vehicle.
Depending on the circumstances of the case, the payment to purchase the replacement vehicle may be made to the bankrupt or directly to the vendor. Whilst the most secure way to deal with matters is by payment directly to the vendor, it is recognised that the bankrupt may get a better ‘deal’ if he/she is able to make a purchase from a private seller or through an auction – for which he/she may need the monies in advance of the sale.
If the monies required to purchase a replacement vehicle are provided to the bankrupt directly (see paragraph 30.146), the official receiver should request evidence of the purchase of a vehicle to be provided to him/her within one month of handing over the monies. If no such evidence is produced, the bankrupt should be requested to repay the monies, which will then be held pending him/her locating a car; the monies can then be paid directly to the vendor.
(Amended May 2013)
Where the official receiver is considering claiming an exempt vehicle of excess value (see paragraph 30.141), he/she may accept an offer from a third party equal to the net value of the car to the estate (that is, less the cost of a suitable replacement, but not the costs of sale – see paragraph 30.145) to avoid the seizure, sale and replacement of the vehicle [note 9].
When valuing the vehicle, the official receiver should take into account the value of any personalised registration mark attached to the vehicle (see Chapter 31.2 paragraph 31.2.74).
Where the vehicle is exempt but of excess value and a third-party has offered to make a payment to allow the bankrupt to retain the vehicle, the official receiver need not instruct agents. This is because it is the right to remove and sell the vehicle that is being realised, rather than the vehicle itself (it not vesting in the estate unless/until claimed – see paragraph 30.141).
When valuing the vehicle for the purpose of establishing if it is of excess value (see paragraph 30.141), or for sale to a third party (see paragraphs 30.140 and 30.148), the official receiver should take into account the value of any personalised registration mark attached to the vehicle (see paragraph 31.2.74).
A vehicle that is the property of a partnership (see Chapter 53, paragraph 53.31) cannot be treated as exempt property as the provisions of the Act relating to exempt property do not apply to property of a partnership.
A vehicle that is the separate property (see Chapter 53, Annex C) of a bankrupt who is also a partner can be treated as exempt, if appropriate.
It is not unknown for disputes to arise from the official receiver’s decision not to exempt a motor vehicle claimed as such by the bankrupt. Other matters such as the sale of a vehicle may, equally, be contentious.
It is important, therefore, that all relevant details of decisions relating to actions taken in regards to motor vehicles are recorded on the file in writing.
Such detail should include notes of discussions with the bankrupt regarding his/her claim for the vehicle to be treated as exempt (see paragraph 30.124) and any third-party offers made for the vehicle (see paragraphs 30.140 and 30.148).
If a vehicle is considered to be exempt property the official receiver should allow the bankrupt to keep control of the vehicle provided it is adequately insured for third party liability, following the guidance in paragraph 30.153.
If the vehicle is of excess value (see paragraph 30.141), the bankrupt should only be allowed to keep control of the vehicle if it is comprehensively insured by him/her and he/she gives the official receiver a written undertaking that only he/she will use the vehicle.
Where the vehicle is left with the bankrupt (see paragraph 30.152), the official receiver should write to the insurers of the vehicle asking them to note his/her interest in the policy and to notify him/her of any activity in relation to the policy. The bankrupt should be notified in writing that he/she cannot dispose of the vehicle pending the appointment of the trustee. The bankrupt should also be informed that, although the official receiver has allowed him/her temporarily to retain possession of the vehicle as potentially exempt property, this in no way binds a subsequent trustee, who may take a different view as to whether the vehicle is exempt.
Where proper arrangements cannot, or will not, be made by the bankrupt (to insure the vehicle, for example – see paragraph 30.152), the official receiver should take steps to have the vehicle taken into storage by his agents.
If the official receiver is dealing with a vehicle of excess value (see paragraph 30.141) and it is the case that the bankrupt cannot insure the vehicle comprehensively (perhaps, he/she cannot afford to do so), he/she might make representations that he/she urgently needs use of the vehicle. In such a case, the official receiver should apply to court for directions asking for an order enabling the vehicle to be sold and funds provided (in line with paragraph 30.145) to allow the bankrupt to purchase a replacement vehicle.
The exempt property provisions (see paragraph 30.121) apply to items acquired by the bankrupt whether for cash or with a finance agreement (including a hire-purchase or conditional sale agreement – see Chapter 31.2, Part 2). The provisions apply even if there is no equity in the agreement. The finance company should be notified if the official receiver accepts the bankrupt’s claim that a vehicle be treated as exempt property. If the company is dissatisfied with the position, it may choose to exercise its rights to repossess the vehicle under the terms of the agreement (see paragraph 31.2.28).
If a vehicle that otherwise would have been exempt has been written off by an insurance company (whether through an accident or theft) prior to bankruptcy, it will not be possible to treat the insurance payout as exempt property in lieu of the vehicle as the benefit under an insurance policy cannot be exempt property following the provisions of the Act (see paragraph 30.121).
The insurance company should be instructed to remit the insurance monies to the official receiver.
If a bankrupt is living in a motor-home or campervan at the date of bankruptcy and this is his/her only place of residence, it is likely that he/she will be able to claim that the vehicle is necessary for his/her domestic use (see paragraph 30.136) and it will, therefore, be appropriate to treat it as exempt, if it is not of excess value (see paragraph 30.141 and paragraph 31.3.76).
Likewise, a vehicle used by a bankrupt as temporary accommodation whilst working away from home may also be considered to be exempt.
[Back to Part 5 – Property personal to the bankrupt]