A bankrupt is allowed to keep vehicles used for personal transport up to a certain value. The amounts are indexed and can be checked on the Australian Financial Security Authority (AFSA) website.

If there is equity in the car that exceeds the indexed amount, the trustee can sell the car and the indexed amount is returned to the bankrupt to enable him or her to buy and keep a cheaper car.

If a car is under finance, and the repayments are not being maintained by the bankrupt, it is likely that the secured creditor (the lender) will take steps to repossess the car. Any shortfall after the sale of the car is an unsecured debt, and the lender will become another creditor and be asked to lodge a proof of debt in the bankruptcy.

Be careful of allowing someone else to pay out any car loan during the course of the bankruptcy. If the car is valued above the threshold amount, even if someone else has paid it out, it will vest in the trustee and most likely be sold.

For more information about what happens with vehicles, visit the AFSA website.