We learn as little kids that sharing is a good thing. Snacks, toys, presents – all are meant to be shared. But what happens when we grow up, and we start to share our cars, houses, or bank accounts? For example, what happens when we title something jointly with another person, such as a parent or sibling? For the most part, maybe nothing. However, if an individual has created a joint title and is looking to file bankruptcy, there is the potential for a lot of bad to happen. Most frequently, I see this in the form of a vehicle that has been co-titled between a parent and child. This can cause issues for a potential bankruptcy filing because the bankruptcy court is going to look at what property belongs to the debtor at the time of filing the bankruptcy and what property belongs to the bankruptcy estate. The bankruptcy estate potentially consists of all property that a debtor has legal or equitable interest in at the time the bankruptcy case is filed. Certain items can be exempted, or protected, from the bankruptcy estate by state law. For example, Arizona law exempts $6,000.00 equity, per debtor, in a vehicle.
The bankruptcy estate would also include any property that a debtor has a partial interest in at the time the bankruptcy case is filed. That means co-titled property. No matter what the original intent in co-titling it may have been. A 2011 case from the Idaho Bankruptcy Court recently dealt with the issue of co-titled assets. In this case a daughter filed bankruptcy while she was a co-owner of her mother’s manufactured home. The mother later transferred the home to a third party. The daughter’s bankruptcy trustee objected to the transfer, arguing that the daughter was an owner of the home. As such, the home became property of her bankruptcy estate upon the filing of her case. The home title was governed by Idaho motor vehicle law. The daughter and her mother had put themselves on title as “daughter OR mother.” This was their downfall. The judge determined that the OR title gave them each 100% ownership of the home and the right to “unilaterally transfer complete ownership.” Because of the title, they were viewed as alternate owners, not co-owners. However, if the title had been issued as “daughter AND mother”, the end result would not have been the same. The AND title creates co-owners who do not each have 100% ownership and cannot unilaterally transfer title without the other’s permission.
Thus, AND is always better than OR. The same rules apply in Arizona. Additionally, Arizona law will allow individuals to designate a beneficiary of a vehicle on the vehicle. When deciding whether to co-title a vehicle, or other asset, this is the best option. The beneficiary designation will allow that individual to receive legal interest after the current title holder passes away, but does not give current ownership interest.