Will My Daughter Lose Her Car if I File Bankruptcy?

Naturally we worry about how filing bankruptcy will affect those we care about.  It is common for a parents to have a car, bank account, even a house, in their names because their daughter or son needed help to buy the car, get a bank account, or qualify for the house.
Does this mean that the daughter’s property is going to be at risk if you file bankruptcy?  Usually not.
We have all been brainwashed into thinking that the legal system is all about technical loopholes and “fine print.”  Even lawyers will often latch onto an old rule of law and insist that it controls the outcome.
One of these rules is that ownership is always determined by whose name is on the title.  That may be a starting point, but it does not determine the outcome.
A recent example is a dispute I was involved with in a Chapter 7 bankruptcy.   The case was filed in the Phoenix Bankruptcy Court. My client’s car was in the name of his limited liability company.  We claimed the car as protected in his personal chapter 7 bankruptcy.  The bankruptcy trustee objected and claimed my client did not have the right to protect the car because it was not in his name.  The trustee correctly pointed out that limited liability companies (LLC’s) did not have the right to protect any property.
At the hearing at the Arizona Bankruptcy Court, the Bankruptcy Judge agreed that the car was owned by my client based on the evidence that he personally paid for the car, paid the insurance, and treated the car as his personal property.  Although the name on the title was some evidence of ownership, it alone did not determine the outcome.
The same is true of the everyday situation where a parent is on the title of their children’s car.  Often this is done for purposes of financing and insurance.  It is also true of bank accounts because the child may not be old enough to open an account in his name alone.  There have even been court decisions involving the “true” ownership of real estate.
This reasoning works both ways.  Sometimes a client will ask me if it would be okay to put a valuable asset into someone else’s name as a way to protect it from the bankruptcy process.  I understand that most people are not at their best when first learning that they may lose something important when filing a bankruptcy.  These are things that most of us would never do, but it does not stop use from thinking them.  It would not work anyway.
Just putting someone’s name on the car title is not enough to transfer the “true” ownership.  The bankruptcy trustee and bankruptcy judge would consider other factors.  Also, there are special rules that allow the Court to take back anything that is given away in contemplation of bankruptcy.
Before worrying too much about how a possible bankruptcy will affect others whose financial lives are tied to yours, check with an experienced Arizona Bankruptcy Lawyer.  It is more complicated than just filling out the Court forms and knowing some general rules.
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