Keeping a car in bankruptcy – how not to buy a car for your child

When I consult with Orlando families who are considering bankruptcy to resolve their financial crisis, they are often interested in knowing whether they can keep a car, truck, motorcycle, or other motor vehicle that they believe is owned by their children out of the bankruptcy case.    Many parents purchase cars for the benefit of their children.  It is also common for a grandparent to buy a car for  a grandchild.  In each of these situations, the parent keeps the car titled in their name, usually to avoid the high cost of insurance for the child.  While they may save money on insurance, it is likely that in most cases the car will be considered to be owned by the parent, to the child, and the trustee will demand that it be surrendered as property of the bankruptcy estate.

In Florida, there is a specific statute that provides the proper method for titling a car or motor vehicle in the name of a minor.  Section 710.111, Florida Statutes provides that property is titled for the benefit of a minor child when:
(f) A certificate of title issued by a department or agency of a state or of the United States which evidences title to tangible personal property is either:

1. Issued in the name of the transferor, an adult other than the transferor, or a trust company, followed in substance by the words: “as custodian for (name of minor) under the Florida Uniform Transfers to Minors Act”; or

2. Delivered to an adult other than the transferor or to a trust company, endorsed to that person followed in substance by the words: “as custodian for (name of minor) under the Florida Uniform Transfers to Minors Act”…

A similar procedure must be followed for the transfer of other forms of property to an adult for the purpose of having the property held for the benefit of a minor.

A recent case demonstrates the consequences of failing to follow this procedure.  In the case of In re: DiStefano, 442 B.R. 146 (S.D. Fla.  2010),  a grandfather purchased, with cash, three cars, allegedly for the benefit of his three granddaughters.  However, all three cars were titled in the name of his daughter, their mother.  Because the procedure in the Florida Statute was not followed, the court held that there was a presumption that the cars where owned by the mother, not the granddaughters or the grandfather.  The court found that the evidence was insufficient to rebut this presumption, and it ordered that the cars be surrendered to the trustee.

As stated by this court: “The decision to title a vehicle in one name or another has consequences.” So the answer to this question is that unless the title to the vehicle shows that it is held in custody by the parent for the minor child, then it is likely, in the absence of compelling evidence, that the bankruptcy court will consider it to be property of the parents

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