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About a month or so ago, I gave a family member $10k to purchase a car, because he needed a reliable car for his two hour commute. He's going through some financial trouble, and is now looking to possibly file Chapter 7 Bankruptcy.

After reading a bit about this, I'm concerned that the car could be seized. Is there any way that he could re-gift the car to me before he files bankruptcy to prevent this? What kind of self-reporting would we need to do to make the re-gift completely legal and ethical? The title would be in my name, but he would still need to use the car to get to work.

I understand that generally unloading assets before a bankruptcy would be grounds to disqualify a bankruptcy. I hope that this situation is different, because the money for the car came directly from me (which can be easily demonstrated) only a month ago.

My family member and I both live in California.

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    have you put a lien on the car? Check with a lawyer if it is still an option.
    – littleadv
    Commented Jul 15, 2013 at 1:56

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California bankruptcy law requires disclosure of any gift made by the person declaring bankruptcy in the past 12 months, and any asset transfers in the past 2 years (with a couple of minor exceptions). This would most certainly include the car, if it is regifted back to you. Such a claim would likely be considered fraudulent, though this would be a matter for the lawyers and bankruptcy trustee in question. There's a blog which you may wish to check out, the California Bankruptcy Blog, which has a specific entry on gifts.

Now, there is a specific exemption for automobiles, but only up to a total of $2725.

Legally, I believe there's nothing you can do here. If the $10K was a loan, it will be discharged in bankruptcy. If it was a gift, it'll have to be declared and the car will have to be sold. If regifted or transferred, it must be declared and will likely (but not definitely) be determined as an invalid disposal of assets.

Either you or your family member will have to discuss this with a bankruptcy lawyer. I'm sorry your generous act is likely to get tangled up here. :(

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  • Thanks for the help!! They might be able to do a wildcard exemption as well, right? As long as they don't need to use it for something else, that is.
    – Bob Loblaw
    Commented Jul 17, 2013 at 4:52
  • @BobLoblaw, California requires the use of state exemptions. There's a limit of $2725 for automobiles under system 1, but up to $4,800 of equity under system 2. It looks like you can get about $25,000 in wildcard exemptions, too, if no homestead exemption is used.
    – ChrisInEdmonton
    Commented Jul 17, 2013 at 15:24

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