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How do I protect my car when co-owner is filing Chapter 7 Bankruptcy?

Houston, TX |

I co-own a vehicle with a family member, and the car is titled in both of our names. I have always made the car note payments and the car will be paid for at the end of March 2013. If my family member files for Chapter 7 bankruptcy, I am concerned that the trustee will take my car (liquidation). I don't yet know if there is much equity in the car, but I need to keep my car. What can I or my family member do in order for me to keep the car during and after her Chapter 7 bankruptcy?

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Attorney answers 6

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If you have paid all of the payments on the car, and can demonstrate that, my position would be that you are the "equitable" or "beneficial" owner of the car, rather than your family member, and the family member is at best owner of 1/2 of the legal title only.

We have done many chapter 7's where essentially, one family member is allowing a second family member to use their credit, with the understanding being that once the vehicle is paid for, title will be transferred to the party that paid for it.

If this is what happened, I do not forsee one of our bankruptcy judges here in Houston making you surrender the car to a Chapter 7 Trustee, if you paid for it and the intent of the parties was that you were to be the owner once the vehicle was paid. I have not even had a trustee try it, in a case like this.

But if in fact you are co-owners, and the agreement with the family member was that they remain so even after the car is paid off, and the car cannot be claimed as exempt, you still may be able to convince the trustee to abandon it if you claim that you should be reimbursed for at least part of the payments made on the car.

Worst case, you can probably arrange with the trustee to buy the family members's share of the car back from the trustee.

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Charles Ross Smith III

Charles Ross Smith III


I must defer to my Texas colleague, Attorney Black, as to whether the Bankruptcy Court in Texas will recognize a "beneficial title" to a car. In Ohio we follow a pretty strict "title" rule. If your name is on the title, you own the car. If not, you do not own the car. We have very few exceptions. This is why local counsel's advice is required in Bankruptcy, even though it's a federal statute.


I would suggest that you discuss this issue with the family member because the exemptions s/he selects will determine what the Trustee may try to take. I am posting a link to a description of the exemptions available in all 50 US states for you to review. When calculating equity, remember to take FMV and subtract the loan balance, then divide in half. Hope this perspective helps!


There are a few issues here. First, if you and the family member are 50/50 titled owners of the car, then the bankruptcy estate only has an interest in 50% of the vehicle. Second, without knowing the value of the vehicle (KBB trade-in value is what I normally use), there is no way to know if your relative's bankruptcy can exempt their share (50% total value minus 50% of the outstanding lien) or not. If not, then their non-share is property of the bankruptcy trustee, and to keep the car, it would have to be traded for an equal amount of case paid into the bankruptcy estate. The other issue is this - YOU don't own the car; you own 50% of the car. The bankruptcy isn't going to give you total title to the car regardless of the resolution of the estate's interest in your relative's ownership.

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I don't know what the exemption amount is for a car in Texas, but it sounds like there is a lot of equity in it. YOU should call a bankruptcy attorney. Good luck.

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First thing is to check the actual title to car. But I bet that you do not have the actual title available because the financier of the car is holding the title. So, find the "memorandum title" or what ever you call the buyers' record of title in Texas. It should be with the original purchase documents for the car. See what names are really on the title. And before you ask, there's no way that the Bankruptcy Court will recognize your ownership of the car, unless you are on the title. I suspect that you could be a co-signor on the loan and NOT on the title. Being on the loan does not help to show any ownership interest. You need to be on the tile to be an owner.

But, calm down a little. This car probably has more owed on it than it's worth. That's GOOD news. Nobody wants such a car. The Trustee can't sell it and make any money. And the lender would much prefer to keep on taking payments as long as the car is fully insured. So, keep making the payments on time and keep it insured. Things will probably be OK, if the car is overliened like I think it is. Good luck.

This answer is not intended to create an attorney-client relationship and may not be relied upon as legal advice. A careful examination of the facts is necessary before a legal answer may be relied on. You should consult your own attorney before taking or refraining from any legal action.


At least in the Dallas area, the Trustees here look in the case of co-titled cars at who has been making the payments. There is a "constructive trust" or "resulting trust" argument that says that the person paying for the car is the one truly entitled to own the car. So, Chapter 7 trustees in the situation you describe would not go after the car because the debtor does not have any real ownership in it. But, I recommend that you visit with a bankruptcy attorney in the Houston area.

I am licensed only in Texas. Offering information of a general nature in response to a question is not intended to be legal advice in your state.

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