There are lots of married couples out there struggling to make ends meet, with both spouses working and both needing to drive a car or truck to get to their job.
While the husband may habitually drive “his” car, and the wife “hers,” very often both vehicles (and sometimes more) will be listed in one spouse’s name on the title.
This has the potential to be a trap for the unwary if the couple ever needs to file a bankruptcy case.
This is because the bankruptcy code in section 522 (d) (2) only allows debtors to exempt “The debtor’s interest, not to exceed $3,450 in value, in one motor vehicle.” That works if each spouse owns one car, but causes mischief if one spouse owns them all.
Consider what happened to the married debtors in the Frankel case, who went shopping together for a used car several years ago. But when the time came to pick up the Honda minivan they selected, the pregnant wife was ill, and had two other kids to look after, so stayed home. The husband took the vehicle in his name only, using funds from their joint tax return for a down payment.
The Honda minivan was principally used by the wife for toting the family around, although the husband did drive it once in a while
Years later, with their vehicles all paid off, they had to file a bankruptcy case. After a bitter battle with an aggressive trustee, the court sided against them, and found that the husband could not claim two motor vehicle exemptions, and also that there was not enough proof that the wife actually was the intended owner of the minivan through the legal principle of a “resulting trust.”
The main lesson here for debtors is to avoid taking title to vehicles in one person’s name only without a good reason, and for lawyers to be careful in ascertaining exactly who owns which car before a bankruptcy case is filed.
by Doug Beaton
