Understanding Bankruptcy: Effect of Joint Car Ownership in Chapter 7 and Chapter 13

Today’s question comes from Hailey in Marietta, Georgia. Hailey is considering filing for Chapter 7 bankruptcy, but her question involves her boyfriend’s car and the steps the bankruptcy trustee may take under the Code to claim an interest in the vehicle.

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Chapter 7 Bankruptcy and Exemptions

Approximately one year ago, she moved in with her boyfriend Chris, who added her to the title of his car for a just-in-case scenario; his car would automatically transfer to Hailey. While that is a simple way to avoid probate court, it creates a problem for Hailey. Chris’s car is a 2020 Chevy Suburban. Hailey estimates that the car is worth between $40,000 and $45,000.

In the state of Georgia, the motor vehicle exemption is $3,500. The exemption means the maximum amount in Georgia that protects an asset when a debtor files for bankruptcy. Remember that exemptions vary per state. The exemption amount is deducted from the car’s value. In this case, Hailey’s interest in the Chevy Suburban is $20,000 (half of the car’s value). The exemption of $3,500 is to be deducted from that amount, leaving a total of $16,500 that is not protected or non-exempt.

Even though Hailey and Chris are not married, Hailey is on the title and legally owns 50% of the car. That 50% interest belongs to the bankruptcy estate.  That amount has to be paid back to the trustee with a Chapter 7 bankruptcy within 10 to 12 months. If not, the vehicle is surrendered to the trustee, who will sell it and return the exempt amount. The remaining funds are distributed to the creditors listed in the bankruptcy petition.

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The other option will be for Hailey to file for Chapter 13 and, at a minimum, pay back the non-exempt portion of $16,500 over the next 36 to 60 months. That would mean payments would range from $458 per month in a 36-month bankruptcy plan to $275 per month in a 60-month plan. This excludes the 10% Chapter 13 trustee fee that is allowed under Section 326 of the Bankruptcy Code. Attorney’s fees also have to be calculated. Remember that exemptions remain the same whether a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is filed.

Realistically, neither option favors Hailey, which is why I always tell clients the answer isn’t always bankruptcy. Unfortunately, while prudent and a good idea, Chris’s act and intent affect Hailey’s bankruptcy case. No good deed goes unpunished.

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While the bankruptcy trustee knows that Hailey was added to the car’s title for convenience, the law looks at the title, and the title makes it clear that Hailey has a 50% interest in the vehicle.

At this point, clients always ask if they can transfer the vehicle back and then file for bankruptcy. The short answer is yes, and the long answer is no. That sounds contradictory and typical for a lawyer, but let me elaborate.

In bankruptcy, this is what is known as the clawback provision. This means that the trustee can “claw back” any transfers to protect the bankruptcy estate. Generally, this is known as the look-back period. Trustees have certain powers that allow them to recoup an asset. This is known as the trustee’s strong-arm powers.

For example, Section 323 of the Bankruptcy Code would allow the bankruptcy trustee to file a lawsuit against the party that received the asset. Section 323 is short, sweet, and to the point:

(a)The trustee in a case under this title is the representative of the estate.

(b)The trustee in a case under this title has capacity to sue and be sued.

11 U.S. Code § 323 – Role and capacity of trustee.

Bankruptcy trustees have powerful tools that will enable them to undo transfers that are considered fraudulent to protect the bankruptcy estate.  

This is commonly called the trustee’s avoidance powers because they can “avoid” certain transfers. That is listed in Section 547 of the Bankruptcy Code, titled “Preferences.” Section 548 – “Fraudulent Transfers and Obligations,” deals with the trustee’s power regarding fraudulent transfers, and Section 549- “Post-Petition Transactions,” applies after the bankruptcy petition has been filed.

Here is Where Bankruptcy Lawyers Get it Wrong

When faced with this situation, it’s common for bankruptcy lawyers to say that the trustee would only go back two years, and after that, all is good. Where did that two-year timeframe come from? It’s listed in the bankruptcy petition’s Statement of Financial Affairs (SOFA) section.

Official Form B207: Statement of Financial Affairs for Individuals Filing for Bankruptcy.

While that statement is partially true, as evident in the pic of the Statement of Financial Affairs seen above, it’s also misleading. Trustees routinely go back past two years if allowed by state statute

So imagine if you transfer an asset such as a vehicle, wait two years, and file for bankruptcy. You now have a major problem on your hands. Trust me; I speak from experience. This happened in one of my cases because a client failed to disclose the transfer of real estate to her son. Looking back at this situation, it became obvious to me that the debtor had met with another bankruptcy lawyer who advised her to file for bankruptcy two years after the transfer of title was done. The debtor came to see me almost two years to the date of the transfer.

Luckily, everything went well in that case. Still, it could have just as quickly gone sideways if the trustee wanted to litigate the matter and ultimately force the sale of the property to satisfy the debts.

Hailey, I hope this helps you understand the issue you are facing and any conflicts between state law and the Bankruptcy Code.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Updated on March 28, 2025.

Updated August 28, 2025.