I want to file a Chapter 7 bankruptcy, but I have a car titled in my name that is used by my daughter who is in college. The car was titled in my name because she did not have the credit to get the car loan on her own. Will I lose the car in the Chapter 7 bankruptcy, even though it really belongs to my daughter?
Just because the car is in your name does not automatically mean it will be taken by the bankruptcy trustee. If a court determines that the car is "equitably owned" by your daughter, she will be able to keep the car, even though you are the one with legal title to the car.
Once you file your bankruptcy, a bankruptcy trustee will be appointed to your case. The trustee will evaluate your property, and take any property or assets which you own and which are not protected by exemptions. (To learn more about how Chapter 7 bankruptcy works, including the role of exemptions, see Chapter 7 Bankruptcy: An Overview.)
When it comes to ownership of property, however, bankruptcy law recognizes a difference between equitable and legal title.
Legal title means that you are recognized, by a document or in a public record, as the owner of property. For example, having your name on a deed for real property, on the title of a vehicle, or on a bank account, makes you the legal owner of that property.
There are many circumstances where the person who has legal title does not in “real life” own the property. For example, you may have legal title, but a family member, spouse, or employer may, on a day-to-day basis, actually have control and possession of the property. If a person owns, uses, and possesses property that is not legally titled in his or her name, that person has equitable title to the property.
If someone other than the debtor has equitable ownership of property, the trustee cannot take that person’s equitable ownership interest away. This makes the property generally safe from seizure by the trustee.
There are many situations where a debtor may have legal title to property, but not actually use, own possess, or maintain it. Some common situations are:
Debtors may be very concerned over losing property in any of these situations. However, because bankruptcy law recognizes the difference between legal title and equitable title, the trustee is unlikely to take property that is equitably owned by another.
In the case of a car, it is not enough that a family member simply drives it to have an equitable interest. The trustee will usually ask certain questions and look at certain facts, to determine whether property is equitably owned by someone other than the debtor. These questions may include:
The more your daughter has control over and spends money and time on the car, the more likely that the trustee will find that she has an equitable interest in the vehicle.
Although property equitably owned by another person is generally safe from seizure by the trustee, be ready for a longer process before your discharge is entered if you are in this situation.
The trustee may want proof of the other person’s equitable ownership, and in some cases may question the other person about usage, payment for, and possession of the car. The trustee may even file an adversarial action to determine whether you have bare legal title, or both legal and equitable title.
Although this does not happen in every case, and although the property may eventually be found to belong to someone other than you, the potential fight is an issue to be aware of should you file for bankruptcy with a car that is in your name but actually owned by someone else.
If the trustee ultimately determines, based on the individual facts of the situation, that you do hold both legal and equitable title, you may still be able to keep the car. For more information, see Your Car in Chapter 7 Bankruptcy: an Overview of Your Options.