Can someone take your car in a lawsuit? The answer is usually “yes.” If you have been sued and have a significant judgment against you, your creditor can force you to sell your vehicles to repay the judgment.
However, there are methods of asset protection for cars that can keep your vehicles safe even if you lose a lawsuit. In this article, we’ll explain how to protect your vehicles from creditors using time-honored asset protection strategies:
- Protect Your Vehicle Using Insurance
- Use Title Holding Trusts to Keep Vehicle Ownership Private
- LLCs Offer Asset Protection for Cars
- Use Equity Stripping to Stop Creditors
- Asset Protection for Cars FAQ
Protect Your Vehicle Using Insurance
The first part of any asset protection plan is to purchase the best insurance coverage possible on your vehicle. Of all the steps you can take to protect your vehicle, getting insurance is the cheapest and simplest one.
As you might imagine, a good insurance plan won’t keep your car safe after a lawsuit. Instead, it protects you and your vehicle by limiting the likelihood that a lawsuit will ever happen. For example, if you rear-end someone, your insurance should pay that person for medical expenses and vehicle repairs. But if you didn’t have insurance, they’d have to take you to court and make you personally cover those expenses.
Ultimately, you want to put as many barriers between a creditor and your vehicle as possible. By carrying a comprehensive insurance policy, you can ensure that a potential plaintiff gets the money they want without having to come after your assets.
The Problems With Insurance
Asset protection for cars may start with insurance, but it doesn’t end there. Insurance coverage is limited. A significant lawsuit will blow past your coverage limits with ease and open the door for a creditor to take your vehicle.
Use Title Holding Trusts to Keep Vehicle Ownership Private
If insurance won’t keep you completely safe, then how can you protect your cars from creditors? First, put each vehicle into a separate title holding trust. The title holding trust gives you ownership privacy. Normally, if someone types your name in the public records, it is easy to see what cars you own, as each is titled to your name. By placing your vehicle in a title holding trust that doesn’t share your name, you can prevent it from showing up in a public records search.
The reason it’s so important to keep your ownership private is simple. The more you have, the more likely you are to get sued. When a person is deciding whether they want to sue you, they’ll usually bring their case to a contingency fee lawyer. One of the first things those lawyers do is run a public record search to see if the case is worth taking. The more value an attorney sees when they run this search, the more likely they are to take the case.
LLCs Offer Asset Protection for Cars
Once you’ve placed your vehicles in a title holding trust, set up one limited liability company (LLC) for each car. LLCs provide asset protection from lawsuits by creating barriers between your business and personal assets. They shield you from being liable for damages caused by someone while they were acting in a professional capacity. For example, if you didn’t place your vehicle in an LLC and someone else got into a wreck while driving your car, both you and the driver could be held liable. When you place it in an LLC, the driver and the LLC can be held liable but not you.
The other reason you want to put each of your cars into its own LLC is to limit the amount of damage any single lawsuit can cause. LLCs essentially create a barrier around all the assets they hold. Lawsuits that happen outside of the LLC won’t jeopardize any assets it holds. At the same time, lawsuits against an LLC can only impact the assets held by the LLC. By placing each car in its own limited liability company, you ensure that the most you could lose is a single vehicle.
If you can, it’s best to set up an LLC before a lawsuit strikes. But if one has already started, it’s still better to take action and establish an LLC than to leave yourself completely open to a creditor.
Use Equity Stripping to Stop Creditors
The final and most potent method of asset protection for cars is equity stripping. To do this, you need to have an LLC that holds your car, plus another LLC that you own privately. Once you’ve established both of those companies, you have the second LLC record liens against your vehicles. This effectively removes the equity that you have in your vehicle.
If you are ever sued, you can then work with an asset protection planner to set up an offshore asset protection trust. Then, have an offshore lender purchase the loan from your LLC and distribute the cash into the offshore trust where it cannot be claimed by a creditor.
Contact Us to Start Protecting Your Vehicles From Creditors
With the right combination—insurance, an LLC, an offshore asset protection trust, and equity stripping—you can protect your car from almost any creditor who would like to claim it. However, to maximize the power of each of these asset protection tools, you need to work with a professional, like those at Asset Protection Planners.
Our team has spent decades handling asset protection for cars, so we know exactly how to keep your vehicle far away from creditors. Schedule a free consultation today to get the financial security you need.
Asset Protection for Cars FAQ
How do I protect my car from a judgment creditor?
You protect your car from a judgment creditor by combining strong insurance, smart titling, and legal entities that separate you personally from the vehicle and its equity. When these layers are set up early and correctly, it becomes very hard and often uneconomical for a creditor to reach your car in a lawsuit.
Judgment creditors can usually go after nonexempt personal property, including vehicles, to collect what a court says you owe. Whether they actually take your car depends on your state’s exemptions, how much equity is in the car, and whether seizure is worth the cost to them.
To make your vehicle less appealing to a judgment creditor, you should purchase the best insurance policy possible. Many lawsuits that lead to vehicles being seized start with car accidents, so if you have a robust policy, the other party is less likely to sue you in an attempt to recover damages.
Next, set up a title holding trust to keep your ownership private. When a lawyer looks into taking a case, they will often see how many assets the potential defendant has. Someone with fewer assets is less appealing than someone with significant personal wealth.
After placing your vehicles into trusts, set up LLCs for every car you have. These companies separate personal and professional liability and limit the amount of assets you could lose to a single lawsuit. The protections offered by an LLC can also keep you safe if someone gets into an accident while driving your car.
Finally, if you are worried about being sued, you should create another LLC and use it to put a lien against your vehicle. This will remove the equity in your car. Later, if you get sued, an offshore company can purchase the lien and place it into an offshore trust that creditors can’t breach.
Here’s a step-by-step guide showing you how to protect your car from a judgment creditor:
- Review your current auto policy and increase your liability limits to the maximum your insurer offers.
- Confirm how much equity you have in your car by comparing its fair market value to the remaining loan balance, if any.
- Look up your state’s motor vehicle exemption and personal property exemptions so you know how much of that equity is already protected by law.
- Meet with an asset protection planner to discuss whether owning the car personally, through a business, or in a dedicated structure makes the most sense in your state.
- Create a title holding trust and retitle the car into the trust name, making sure the trust name does not reveal your identity.
- Form a new LLC specifically for the vehicle and keep it in good standing each year.
- Transfer beneficial ownership of the vehicle from the trust to the LLC so that the LLC becomes the legal owner while the trust maintains privacy in public records.
- Open a separate bank account for the LLC and run all vehicle-related income and expenses through that account.
- Form a second privately owned LLC that will act as a lender, and draft a loan agreement between the lender LLC and the LLC that owns your vehicle.
- Have the lender LLC record a properly documented lien against the car with your state’s motor vehicle department, reflecting the loan amount you want secured.
- Keep accurate records of payments, interest, and correspondence between the two LLCs to legitimize the loan.
- If a lawsuit or serious claim arises, consult your asset protection planner about whether to have an outside or offshore lender purchase the loan tied to the lien.
- When necessary, move any proceeds from that loan sale into a properly structured offshore asset protection trust so that cash is held outside your personal reach and outside typical creditor reach.
