Will My Bankruptcy Affect My Children?

Filing for a bankruptcy is a very personal decision, but it can affect other people in your life. If you’ve delayed filing for bankruptcy for reasons that have to do with other people, you aren’t alone. Whether it’s the opinions of others or the fact that you have co-signers on loans who will be directly affected, letting other people affect your decision to file for bankruptcy is common.

For some, the “other people” affecting the decision to file for bankruptcy are their children. You’re more likely to postpone filing for bankruptcy if you’re worried about how filing will affect your children.

What Are some of the Most Common Concerns?

• How does bankruptcy affect the money I’ve saved for my child’s college education?
• Will I still be eligible to apply for loans to pay for college tuition?
• Can the bankruptcy court take money my children have in savings?
• How does the bankruptcy court deal with private school tuition?
• Will bankruptcy eliminate child support payments?

Is Your Child’s Property Really Your Property?

The simplest answer to this question is “sometimes.” Property you paid for that’s used by your child – furniture, toys, clothing, etc. – is still considered your property. However, if your child paid for any of these items and you’re able to prove it, the property is not considered yours.

Chances are the majority of things your child uses would legally be considered yours. This means you’ll want to protect the things that are of value. Those filing for Chapter 13 bankruptcy will get to keep their property and those filing for Chapter 7 are able to exempt certain types of property.

The majority of property your child uses won’t even be an issue in bankruptcy. Bankruptcy trustees have no interest in children’s furniture or clothing or toys because there’s little to no value in these things. Bank accounts, on the other hand, are a different story. You’ll need to carefully work with your bankruptcy attorney to protect any money that’s invested in an account that belongs to your child.

A trust in your child’s name is not considered part of your bankruptcy, even if you happen to be the custodian of the trust. That money legally belongs to your child and nobody else, even if he or she must wait until a certain age to access it.

It should be noted, though, if you transfer money into your child’s bank account that was originally your property, it can still be accessed by the bankruptcy trustee. As a matter of fact, a transfer such as this could be considered bankruptcy fraud and result in the denial of your bankruptcy.

Educational Funds and Bankruptcy

Educational funds are treated similarly to trust funds. For instance, the federal bankruptcy code excludes 529 plan funds from property of the bankruptcy estate. You filing for bankruptcy also has no bearing on your child’s ability to qualify for a Pell Grant or Stafford Loan, but does disqualify you from credit-based loan such as the PLUS loan if you filed within the last five years of applying.

Your child can still attend private school if you file for bankruptcy, but there are tuition limits. You and your attorney can discuss your situation if private school funding is a concern.

How your bankruptcy affects your loved ones can be a major factor in whether or not you file. The good news is there is a great deal of protection available. For more information or to schedule a time to discuss filing for bankruptcy, contact the Law Offices of Robert M. Geller at 813.254.5696.