Bankruptcy debtors use their $4,000 wildcard exemptions most often to protect cars. The debtor can apply the wildcard only to cars in the debtor’s name. For example, if a married couple is considering Chapter 7 bankruptcy and both of the couple’s cars are titled in the husband’s name the wife cannot apply her $4,000 wildcard exemption to either of the cars because she owns no car.
One of my clients found themselves in the above situation where they had two cars titled only the husband’s name. Both spouses were eligible for a wildcard exemption. The husband asked me whether he could transfer one of his cars to his wife’s name prior to filing bankruptcy. Is this a fraudulent transfer of a non-exempt car to a third party? Is this a fraudulent conversion of the non-exempt car to an exempt asset? Is this lawful pre-bankruptcy exemption planning to maximize available exemptions?
Technically, I see a fraudulent conversion of non-exempt car to an exempt status, but it just does not seem like a typical fraudulent conversion. (A “typical” conversion is, for example, using non-exempt cash to purchase an exempt annuity). The law permits pre-bankruptcy planning to take advantage of exemption. My guess- far from certain- is that the transfer of the car from husband to wife is proper, especially if it is fully disclosed.
The law intends to give each spouse a wildcard exemption if they are not claiming homestead protection. In fact, the cars are used by both spouses. I think these debtors should transfer one of the husbands cars and claim both wildcard exemptions. If there really is valid pre-bankruptcy exemption planning then this is the type of arrangement that seems to fit