Bankruptcy and Its Effect on Children

Filing for bankruptcy is never an easy decision.  There are many factors that you must consider before you file. How bankruptcy will affect your children in the present and future, is a legitimate concern that must be taken into consideration.

In regards to your child’s property, any property in your household is considered yours, including items that you gave or “gifted” to your child.  These items include your child’s bedroom furniture, toys, clothing, etc.  The only way it will be considered your child property is if the child purchased the item with their own money and it can be proven.  Under Chapter 13 bankruptcy, in most instances a debtor can keep all of their property, and in Chapter 7 you can keep all exempt property. Fortunately, Trustees are typically not interested in used furniture or household goods.

As for child support issues, the court will protect your child.  The Court treats support orders with the utmost importance and support obligations will not be discharged in bankruptcy.  This rule applies to both chapters 7 and 13 bankruptcies.

Child bank accounts or money held in trust for your children are generally not property of the bankruptcy estate.  If you are the custodian for a trust account, this money is not yours, therefore, the trustee and creditors cannot get access to this money.

Private School tuition for private elementary and secondary schools are allowed in Chapter 7 bankruptcy, however, a chapter 13 may not allow for it.  The federal government allows an educational expense per child under the means test, if your child’s school is more than that, then it will be determined on case-by-case basis.

If your child is seeking student loans, generally speaking, a bankruptcy should have no impact on eligibility for federal student aid.  You might be disqualified from credit based financial aid like the Plus Loan and the Graduate Plus loan if you have declared bankruptcy within the past five years, unless there was an extenuating circumstance.  Regardless, your child qualifies for Stafford loans which are more beneficial because the loan remains in forbearance while the student is in school.

Ultimately, you should be aware about the effect of bankruptcy on your child’s future and the complications that may arise. Therefore, you should discuss the issue with a bankruptcy attorney before making a final decision.


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