Bankruptcy and Kids
If you’re like most parents who try their best to protect and provide for their children, you’ve likely made at least a few decisions based on how your kids will be affected. Life changes once you’re responsible for other people and knowing that a choice you make could negatively impact your children is often enough for parents to say no to bankruptcy.
But what about bankruptcy?
If you are a parent struggling financially and wondering if bankruptcy could help, you’ve likely wondered how filing could affect your children. In addition to the emotional stress and strain that can come from filing for bankruptcy, are there any financial consequences that could affect your children that you should be concerned about before you file?
Bankruptcy and Child Support
Child support can be a significant financial burden. Even if you intend to do right by your child, keeping up with child support payments when you are struggling financially can be difficult.
Unfortunately, filing for bankruptcy will do little to help if this is the case. Child support is not a debt that can be discharged in bankruptcy. As a matter of fact, when assets are liquidated in a Chapter 7 filing, child support payments are one of the top priorities of the bankruptcy trustee. In Chapter 13 bankruptcy, child support payments are part of the repayment plan.
This is the case regardless of whether you are current or behind on child support payments. Filing for bankruptcy can provide relief from other debts, freeing up money to put toward child support payments, so in that way filing for bankruptcy could benefit your child. The same is true if your child’s other parent chooses to file.
Bankruptcy and Education Contributions
Many parents begin saving for their child’s private or college education early on in life. Unfortunately, filing for bankruptcy can affect how much you are able to put toward these funds.
In most cases, the bankruptcy court will only permit you to spend money on what it deems necessary expenses – rent or housing payments, transportation, food, medical expenses, etc. The court typically considers education contributions a luxury expense. There are some instances in which these payments might still be allowed, but you’ll need to consult with an experienced bankruptcy attorney about your case to determine how to proceed.
Bankruptcy and Your Child’s Savings Accounts
When you file for bankruptcy you are required to disclose all debts, assets, and liabilities to the bankruptcy court. This usually includes any assets your children might have because the court generally makes no distinction between what is yours and what is your minor child’s. To avoid your child’s savings accounts or other assets from being seized in a bankruptcy filing, you must set them up properly and use them in the proper manner. You must be able to prove that the asset belongs solely to your child.
One way to do this is to open any bank accounts for your child under the either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), even if you are not concerned about bankruptcy when you establish the account. You can learn more about the UTMA and UGMA here.
If you’d like to know more about how filing for bankruptcy could affect your children, please let us know. Schedule an appointment with the Law Office of Robert M. Geller online or call us at (813) 254-5696.