I received this question from a reader of my Georgia Bankruptcy web site. This question has to do with title ownership vs. “real ownership.” I get this question frequently – what do you think my reader can do?
I have two friend’s cars in my name because when they each got there income tax refunds this year they both purchased vehicles from private owners, but both had issues and/or no drivers license at the time they purchased so they could not title the vehicles in their own name. i am doing this favor for just a month or two until they finish paying off their fines and reinstatment fees or whatever. but i am planning to file bankruptcy and my attorney is telling me this is going to be a problem if i transfer their vehicles out of my name to someone else to prevent the trustee from trying to take my friends’ cars. but the truth is these cars really do not belong to me so what should i do in this situation. should i wait until 3 or 4 months after transfering titles or will it still be a problem or what can they really do to me if i transfer titles this week and file bankruptcy next week? i need to hurry up and file because on of my creditors wants to garnish my wages for $5K and i can not afford that.
Here is my response: First the attorney you consulted is exactly right – it would be a big problem if you transferred title prior to filing bankruptcy. This type of transfer is called a “fraudulent transfer” and could result in a denial of discharge. The Bankruptcy Court does not care that these vehicles “really do not belong to you.” If the title is in your name, they belong to you.
The only way to transfer title is to sell the vehicles at a market price. If you sell them, the trustee will want a detailed breakdown of where the money went and if you sell them to your friends, the trustee will scrutinize the transfers very closely to make sure that they are not sham transfers.
If you file bankruptcy while still owning the vehicles, those vehicles would be considered as assets of your bankruptcy estate and subject to liquidation by the trustee.
Unfortunately, you will have to make a difficult decision here – if you file bankruptcy to protect yourself against garnishment, then your friends will either lose their cars or they will end up “buying” them back from the trustee. If you transfer title, you will not be able to file for bankruptcy anytime soon.
The lesson here – be very wary about putting title to any asset in someone else’s name. You can read a lot more about “fraudulent transfers” on this blog – go to the search box and type in the term “fraudulent transfer.”
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