Bankruptcy

Car Title Determine's Chapter 7 Trustee Interest In Car Paid For Wholly By Debtor's Parents

By Jonathan Alper

Many parents put their children on title to the parents? real estate, bank accounts, and cars for estate planning purposes. The parents want to give the children access to the assets in the event of the parents? disability or death. Recent blog posts(see below)  have addressed problems this joint titling causes when the children file bankruptcy. The parents? assets are subject to inclusion in the child?s non-exempt bankruptcy estate. In the case of jointly owned assets such as real estate or financial accounts the debtor children could take the position, if provable by evidence, that all the money that when in to the jointly owned real estate or financial accounts was the parents? money so that the debtor child had no "equitable interest" in the property. If the child?s interest is limited to having their name on the account or deed with no financial investment, and the child can asset no rights or control in the asset, they may be able to protect the asset from a bankruptcy trustee.

This issue came up during a creditors meeting this past week for one of my Chapter 7 bankruptcy clients. In this case, a parent had purchased a car for cash and added the debtor/child?s name to the car title. The parents? furnished all the money to purchase the car, and the parents? paid for insurance. The Trustee rejected the debtor?s argument that this car was his parents? car to be excluded from his bankruptcy estate. The Trustee said that car title is determined solely by the names on the title certificate and that there is no such thing as equitable ownership in a car. Therefore, the debtor could not sustain a position that he had less than 50% interest in the car as shown on the face of the car title.

I have not researched the issue, but I think the trustee?s position is legally correct. If the Trustee is correct the child?s 50% interest in the car will be part of the bankruptcy estate. The parents will have lost half of their equity in their car, and the parents or child will have to pay the Trustee half of the current car value or surrender the vehicle to be sold at auction by the Trustee. (in which case the parents would receive half of the sale proceeds). This example points to the pitfalls of estate planning by sharing ownership with children.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida 

Full post as published by Florida Bankruptcy Law on February 01, 2009 (boomark / email).