Chapter 7 Bankruptcy and Ownership

Part of filing your chapter 7 bankruptcy case, will be evaluating your assets. Bankruptcy debtors must supply San Diego bankruptcy judges and trustees with a comprehensive list of all the property they own.

Ownership sounds like an obvious concept, but we often do not realize that we can own property that’s not actually ours. There are many situations where we casually say that something “is in my name,” but is actually the property of another.

Some examples may be:

  •  A mother that has her minor son’s money in her account because the minor is too young to have a bank account
  • An employer which provides an employee with a car, but requires the car be in the employee’s name
  • Parents who own a car in their names that’s used by and for an adult child
  • A gift from a grandparent for a grandchild that is titled or held in the name of the grandchild’s parent
  • Property which is titled in the name of a divorced spouse, but per a divorce decree, now belongs to and is used by, the other spouse

Many consumers who file for bankruptcy have concern that a bankruptcy court may try to take property in these kinds of situations, just because it may be titled in the debtor’s name. Luckily, bankruptcy laws have developed something of a solution to this problem.

 Legal vs. Equitable Ownership

The law recognizes that there are generally two kinds of ownership: Legal, and Equitable.

Legal ownership refers to the owner of property “on paper.” This may refer to the names on real estate deeds, car titles, or bank accounts. For example, the name on a bank account is the legal owner of that account. Many times, issues such as age or credit require that one person title property in their name, thus becoming the legal owner, even though it really belongs to another.

But the law also recognizes equitable owners. An equitable owner is the “real” owner, or the owner in practice in day to day life. A college student who lives 500 miles away from her San Diego parents may be the equitable owner of the car she drives, even if the title is in the name of the parents.

The Bankruptcy courts generally will not take property that is only owned by someone who is the legal but not the equitable owner. This is sometimes called “bare legal title,” and it protects equitable owners of property who, for whatever reason, do not have legal title.

Whether someone has “bare legal title,” is a factual question. The more a debtor pays for, maintains, and controls property, the more likely it is the debtor has both legal and equitable title, and the property could be taken by the bankruptcy court.

Thus, debtors seeking to assert that they only have legal title, and thus protect property, should take care not to make payments towards property, or attempt to control property to their benefit. These things should be done by the “true” equitable owner. This helps establish that the debtor owns the property in name only.

Seek Legal Help

Every bankruptcy case is different. Let experienced San Diego bankruptcy attorneys evaluate your case and your facts and discuss with you the best and safest ways to discharge your debts. Contact the Bankruptcy Law Center for a free consultation today.