This post is not an opinion on what to do or not do. That is up to you, depending on your wants, needs, and priorities in life. Instead, this post is meant to inform you of the risks of having your name on title to property that is not really yours.

Many people allow their children to use their credit in order to buy homes or cars. While this is normal and expected parental behavior, it can create big problems for the parents if they get into financial trouble and want to file bankruptcy. A little background information is needed in order to explain why.

When you file bankruptcy, you may protect a certain amount of equity in your property by using a limited amount of "exemptions." (The value of property above what you owe for it is called "equity," and this is what must be protected by using your exemptions.  See the "Protecting Your Property From Liquidation" section of this page of my website for more information about exemptions.) In a Chapter 7 bankruptcy, a trustee can take any equity that you do not protect and sell it to pay certain creditors. In a Chapter 13 bankruptcy, your plan payments could be increased by the amount of equity that you cannot protect.

So, how could allowing your child's property to be held in your name be a problem? Let's say your child wants to buy a new car for $25,000 and can put $5,000 down. Your child can afford both the down payment and the monthly car payments, but does not have good enough credit to qualify for a loan. Being a loving parent, you offer to get the loan for your child, even though your child will pay for and use the car.  In order to get the loan, the car is put in your name.

A year later, the car has $6,000 of equity. Meanwhile, you have gotten into financial trouble and need to file bankruptcy. You can protect all of the equity in your own property, but you cannot protect the equity in the car because you have run out of exemptions. Your choices are to not file bankruptcy and suffer the consequences of creditors harassing and suing you, and possibly losing your home and/or car, or to file and either pay $6,000 to the bankruptcy trustee to pay certain creditors or give up your child's car.

Whether to put your name on your child's property is your choice, but be aware of the possible consequences of doing that. Perhaps you are willing to make this sacrifice, but you should at least know before doing it that you are making a financial decision that could have serious consequences.