I had two trustee meetings today with clients who acquired new cars not long prior to filing bankruptcy. Both debtors got help from more affluent family members to get their cars, but the two debtors and their respective families chose different ways to title the car and structure the transaction. Debtor Number One was driving a new car paid for by his father when he filed bankruptcy.. His father purchased the car in his own name for cash and then gave the car to his son, the debtor, to use. Debtor Number Two borrowed money from his brother in law to purchase a new car before bankruptcy. Debtor Two purchased the car with the brother in law’s money prior to filing and shortly after filing bankruptcy he recorded a lien on the title in favor of his brother in law.

Debtor One keeps the car. Debtor Two loses the car. Because the lien on Debtor 2′s car was recorded after the bankruptcy the trustee can avoid the lien and treat the car as owned free and clear by Debtor 2. Debtor One keeps his car because even though this debtor drives the car exclusively, pays for gas, repairs, and insurance, the car title was never in the debtor’s name and the debtor never had legal title.

The morale of this true story is that if a family member wants to help you out getting you a car before you file Chapter 7 bankruptcy have the family member title the car in their name. After you file the petition the same family member can gift the car title to you. Alternatively, if the family member does not want the liability of ownership he can loan you money for your car, but make sure the family member puts a lien on the car at the same time you buy the car (just like a bank would do).

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