Protecting A Child’s Car In Bankruptcy

Often, mostly for insurance purposes, a parent will put their child’s car in their name alone, or jointly with their child. What happens when the parent decides bankruptcy is a good option? How can we protect the “child’s car” when the parent files Chapter 7 or Chapter 13? Florida Statute 222.25(1) provides the debtor with a $1,000 exemption against a “single motor vehicle.”

For example, if the debtor has a car that is worth $2,500 with no debt, based on the exemption the car will have $1,500 of non-exempt value that must be paid to the Trustee to be distributed to unsecured creditors. The problem is that the parent can only apply that $1,000 exemption to one car (and in the example above, the exemption is not enough to protect the entire value of the car). Therefore, if both mom and dad file, each with their own car, they may choose to protect equity in their cars, leaving the “child’s car” exposed to the Trustee. In addition to the Motor Vehicle Exemption, FL Statute 222.25(4) allows Floridians to protect an additional $5,000 of personal property if they rent or surrender their home. In the example above, if the parent chose to exempt their kid’s car, and rented, they could use $1,500 of their $5,000 “wild card” exemption to completely protect the car. Of course, this leaves only $3,500 worth of exemption for the rest of their personal property, including equity in their cars. One other argument is to attempt to prove that although the title is in the parent’s name, the car is constructively owned by the child. This is a very fact and time-intensive analysis, which is less often successful. Some things the court might consider: who pays the gas bills, who pays the maintenance, who pays the insurance, who primarily drives the car, and who contributed money towards the purchase of the car? If the answer to these questions is “my kid” then the car could be determined to be owned by the child although title is in mom and/or dad’s name. Finally, some pre-purchase planning could also help. The problem is that no one intends to file bankruptcy. Proper planning, by its definition however, is designed to avoid the unforeseen situation – whether that is a bankruptcy, or a car accident. If the car is titled in the name of “‘Parent’ as custodian for ‘Child’ under the Florida Uniform Transfer to Minors Act” as described in FL Statute 710.111, then it would not be property of the parent’s bankruptcy estate. – Shawn M. Yesner, Esq. For more information on Foreclosure issues, or to schedule a free initial consultation to discuss your options, please contact our firm at: 727-261-0224 or email me at:shawn@yesnerlaw.com. Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with Chapter 7, Chapter 13, bankruptcy, liquidation, reorganization, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan