Bankr. W.D.N.C.: In re Buffington- Vehicle Ownership was not Bare Legal Title nor held in a Resulting Trust

Summary:

The Chapter 13 Trustee objected to confirmation of Erica Dawn Buffington’s plan, arguing that the Debtor’s ownership interest in a 2010 Honda CRV was undervalued and not properly included in the bankruptcy estate. The Debtor had listed the vehicle on her Schedule A/B with a value of $0.00, claiming she held only “bare legal title” while the vehicle was in Texas with her stepfather and the equitable interest rested with him. The Debtor’s position was based on a resulting trust theory, arguing that her stepfather had made all payments on the car loan, and the vehicle was intended to be his following her mother’s death.

The Court rejected the Debtor’s argument and sustained the Trustee’s objection, holding that:

1. Under N.C. Gen. Stat. § 8-37, a certificate of title is prima facie evidence of ownership, and the Debtor was the titled owner at the time of the bankruptcy filing.

2. The Debtor failed to establish a resulting trust, as the funds used to acquire title were not provided by the stepfather at the time title passed; rather, the Debtor refinanced the loan in her own name.

3. The precedent cited by the Debtor, In re Stafford, was inapposite, involving an insurance dispute and not direct ownership or title issues.

The Court ordered the Debtor to amend her plan and Schedule A/B to reflect the full retail value of the vehicle and to increase plan payments to pay the non-exempt equity: $615/month for four months, then $655/month for 56 months.

Commentary:

Judge Beyer’s ruling in In re Buffington emphasizes the importance of legal title in determining what constitutes property of the estate. While the Debtor made a plausible emotional argument grounded in family intentions and equitable ownership, her reliance on a resulting trust failed under North Carolina law, which requires that the alleged beneficiary provide consideration at the time legal title passes. Because the Debtor refinanced the vehicle in her own name—and not using funds advanced by her stepfather—the resulting trust theory collapsed.  

While not mentioned in the opinion,  if  the stepfather made a promise to pay, that is sufficient consideration to create a resulting trust:  "Additionally, we note that a promise to pay may serve as adequate consideration to support a resulting trust. Cline v. Cline, 297 N.C. 336, 346, 255 S.E.2d 399, 406 (1979)   Anderson v. Anderson, 101 N.C. App. 682, 685, 400 S.E.2d 764, 766 (1991).  And to the extent that a Trustee believes that such a promise to pay is illusory and just made up to remove assets from the estate,  it certainly could be challenged,  including under the Statutes of Frauds,  as N.C.G.S. § 22-1  requires that "a promise to answer for debt of another"  be in writing.

However, the Court’s insistence that the Debtor amend her Schedule A/B to list the “full retail value” of the vehicle (based on JD Power Clean Retail) raises an unresolved tension between legal ownership and actual liquidation value. While the Debtor is the titled owner, it is worth questioning whether this vehicle—located in Texas, driven by someone else, and not in her possession—would realistically generate its full retail value in a hypothetical liquidation. Chapter 7 trustees are not car dealers, and vehicles are often sold at wholesale or auction prices, especially if they are out-of-state or in the possession of non-debtors.  

North Carolina bankruptcy practitioners should be alert to this nuance. While Schedule A/B asks for retail value, that is not necessarily equivalent to the value creditors would receive under the Chapter 7 liquidation test in § 1325(a)(4). An argument might still be made—particularly at a confirmation hearing—that the “value to the estate” is substantially less than JD Power's retail figure, especially if significant costs would be incurred to recover, transport, and sell the vehicle.  Recent examples of vehicles sold by Chapter 7 Trustees in North Carolina have brought less than 50% of the NADA Trade-in value.

Ultimately, Judge Beyer did not address this liquidation-value question directly, focusing instead on ownership status and the inclusion of the vehicle in the estate. But debtors and their counsel might push for a more tailored valuation approach, especially where possession and control are attenuated, and use of full retail value could overstate what unsecured creditors would receive in a true liquidation.  

This is especially true as the hypothetical liquidation requirement (HLRL)  allows reduction in Chapter 13 for the costs,  among others,  of the litigation that would be necessary for recovery of an asset,  depleting the amount the unsecured creditors would receive.  Many Chapter 13 Trustees seem to think that the HLR requires that a debtor suffer the same pain as she would in a Chapter 7,  viz.  paying for the car,  when it actually only requires that unsecured creditors get the same benefit after all costs.  This is meant by Congress to encourage choosing Chapter 13.

Following this decision,  the need for a comprehensive  analysis of how much Chapter 7 Trustees in North Carolina actually obtain for the benefit of unsecured creditors when liquidating assets is needed.  Perhaps the Bankruptcy Administrators already have data in this regard,  otherwise the consumer debtor bar will need to compile this information and disabuse the courts and Chapter 13 trustees of the notion that the hypothetical liquidation test in Chapter 13 requires funding a plan for the retail value of the vehicles.

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