Bankruptcy

Little Johnnie's Car, and Mere Title in the Arizona Chapter 7 or 13 Proceeding

By Joseph McDaniel, Esq.

Well, it's pretty simple.

Debtors in Chapter 7 cases (to make this simple, I'm talking about Chapter 13 cases; but the Arizona exemption laws have application in Chapter 13 cases. It's just a little different application than in Chapter 7 cases.) often have three cars, bought and paid for.

One car for mommie, one for daddy, and one for little Johnnie.

But all three are titled in the name of the parents.

And only little Johnnie has made payments on his car.

So what happens in the Chapter 7 bankruptcy when three cars show up on title for mom and dad?

And to keep it simple, they're all worth exactly five thousand dollars, so all would qualify as exempt under the Arizona exemption statute for cars, except that the debtors in a joint case get ONE car each, not one and a half.

Well, often, there's NOT a problem, because little Johnnie has made every single payment on his car from his own account from his own job flipping burgers.

So why is title in parent's name? Either because little Johnnie couldn't get a loan, or couldn't get car insurance.

Under that specific circumstance, the bankruptcy trustee in mom and dad's joint Chapter 7 bankruptcy might very well decide not to attempt to administer the case.

Excessive compassion? Early dementia? Neither one.

The relevant bankruptcy statute is 11 USC 541, entitled "Property of the Estate"; the legislative history to the New Code (that is, the Code that went into effect when my hair was a different color) discusses the idea of "mere legal title" without equitable title.

And under THAT specific pattern of facts, there may well not be a problem.

When would a problem show up?

Well, if little Johnnie can't show a trail of payments, or if little Johnnie made some payments and mommie and daddy made some, or even one, there might be a problem; or if mommie and daddy made the down payment and then little Johnnie made all the payments thereafter. I'll discuss the variations in later posts.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on May 13, 2010 (boomark / email).