Legal And Equitable Title: Owning Stuff You Don’t Really Own
In bankruptcy, the less you own the better—the less property that could potentially be taken (although in reality, most people don’t lose any of their property in bankruptcy). But did you know that there is a way that you can own things without actually owning them for the purpose of bankruptcy?
This may seem like some sort of riddle, but the truth is that bankruptcy law separates what is known as legal title from equitable title. As a general rule, the bankruptcy court usually will not touch anything that is yours in name only—this is called “bare legal title.”
There are a number of situations where bare legal title may come up in bankruptcy. They can include:
- A car that is driven by, maintained by, and housed at, an adult child’s house—even though the car is titled in the name of a parent
- A car or other property that is owned by an employer, but which is used by an employee
- A bank account that is titled in someone’s name, but it’s really someone else who makes deposits, withdrawals, pays fees on the account, and who has signature authority on the account
In all of these situations, there is a legal owner of the property, but that legal owner is just the legal owner in name only, or on paper.
Does it Help?
Whether this difference between legal and equitable title matters is based on who you are—if you’re the person with the bare legal title, this is very helpful, because now you don’t “own” property, making it easier for you to file your bankruptcy. Of course, if you’re the person who has equitable title, it may make it more difficult because you will have to exempt more property to keep it.
Proving that you have only bare legal title can be difficult. Not every piece of property has a title with a name on it. Even if it does—the fact that something is legally in your name is not determinative. You may have to provide evidence as to why you are not the equitable owner and show the court who is the equitable owner.
One thing a court will look at is who can sell property—generally, someone with just equitable title cannot legally sell property to someone else.
If you are just an owner in name only, the property may not one considered yours, and that means that you won’t have to exempt it–you can save your exemptions to protect the property that really is yours.
The good news is that sometimes, if property is not of a significant value, the trustee may not bother with an extended fight over proving ownership. With some bare evidence, and perhaps basic documentation, the trustee may just accept that you are only an owner in name only, without an extended fight.
Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today for help with your bankruptcy case