Is this considered illegal? What't it called?

If a person incurs debt knowing that they are going to file for bankruptcy, the debt is not dischargeable. The bankruptcy trustee and/or the creditors can object to the discharge. If neither objects, it is possible that the bankruptcy could go through and that the debts would be discharged (in which case, your friend would likely be able to keep the car). But, your friend should realize that there are significant penalties for fraud and for perjury on a bankruptcy petition (up to $250,000 in fines and/or up to 5 years in Federal prison). That makes it very risky to try something like that and hope that the trustee doesn't do his/her job.