Bare Legal Title: Car Not Really Mine?

There is a concept of bare legal title, that the debtor is on the title but has no beneficial interest in the property. Similarly, the debtor may own the property as a constructive trust for a third party’s benefit. This often happens with bank accounts and vehicles. There is case law in the Southern District of Florida which supports the ability of a debtor to claim that property titled in the debtor’s name does not really belong to the debtor and cannot be taken by the chapter 7 trustee.

A recent case highlights the need for a debtor and the bankruptcy attorney to be careful about this issue. On March 6, 2012, Judge Raymond Ray held that the one-half ownership by the debtor of a vehicle owned jointly by the debtor and her mother could not be excluded as property of the bankruptcy estate. In re Claire Fletcher, Case No. 11-35386 (DE 41). At first glance, the debtor’s argument of bare legal title made sense because the mother paid for and used the car. The debtor was a joint owner only to help obtain cheaper car insurance. But the mother was also a dependent of the debtor and resided with the debtor. The debtor made the insurance payments and maintenance costs. These and other related facts led the court to conclude that the debtor could not assert bare legal title and that the trustee had a right to 1/2 of the value of the car. The trustee was entitled to sell the vehicle.(The court did provide an opportunity to the debtor to convert to a chapter 13).

This fact pattern is not unusual. More typical would be a parent signing the credit for a child. Bankruptcy attorneys should consider whether the co-owner resides with the debtor, is a dependent, or whether the co-owner has an independent household and pays all of the expenses.



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