There are many reasons why people struggling financially postpone or avoid bankruptcy. In some cases, that reason is their children. As much as they’d like to utilize the benefits of bankruptcy, they are concerned that doing so would negatively impact their children.
Have you put off bankruptcy because you’re worried it could affect your children? You aren’t alone.
Well-intentioned parents accept a bleak financial situation because they believe taking drastic action, such as filing for bankruptcy, will make things harder on their children. Some of the most common concerns parents have deal with funding education. Will their filing for bankruptcy affect their child’s education savings or ability to pay for college tuition?
Before you file for bankruptcy – or before you dismiss the idea of filing – it’s important to understand just how your decision will affect your child.
Your Child’s Property
There are many instances in which your “child’s property” is actually your property. For instance, the things you paid for are legally your property even if you gave them to your child.
The only way the bankruptcy court will consider these items the sole property of your child and off-limits in a bankruptcy is if you can prove your child paid for them with his or her own money.
The good news is the majority of your child’s belongings will not be of concern in bankruptcy. Things like toys and clothing are of little value to a bankruptcy trustee and won’t even come up in bankruptcy discussions.
Your Child’s Bank Accounts
Bank accounts, on the other hand, are a completely different issue.
The best way to protect any money your child has in a bank account is to work with a bankruptcy attorney who understands how to protect assets and ensure your child’s money will not become an issue in your bankruptcy. The same is true for a trust in your child’s name. Even if you are the custodian, any money your child has in a trust will not be part of your bankruptcy.
What about Money for My Child’s Education?
Bankruptcy law treats education funds much the same way it does trust funds. For example, 529 educational plan funds are excluded when you file for bankruptcy. Your child will also be eligible to apply for a Pell Grant or Stafford Loan even if you file for bankruptcy.
Filing can, however, disqualify you from receiving money to help your child pay for college tuition. For instance, any credit-based loans, including PLUS loans, won’t be available if you file for bankruptcy within five years of when you need to apply for the loan.
If you’d like to know more about how you filing for bankruptcy can affect your child’s ability to get financial support for college, take a look at this article from FastWeb.
What about Private Grade School?
For many families, concerns about tuition begin years before college. If your child is attending private preschool, elementary, or high school, you might be concerned about whether your bankruptcy will effect tuition payments.
According to bankruptcy laws, your child can still attend private or parochial school, but limits are placed on tuition costs. If this is a concern for you, make sure you discuss it with your attorney during your initial consultation. You’ll also want to bring all pertinent information about tuition costs with you to the meeting.
Beware of Fraud
Bankruptcy fraud is something that can occur even when a filer is well-intentioned. And if the court believes you committed fraud – unintentionally or intentionally – your case can be denied.
This means if you are even considering bankruptcy, you’ll want to avoid transferring money into your child’s bank account. Doing so can be viewed as an attempt to hide assets and will result in the bankruptcy trustee accessing the account. Even if you transfer the money for an unrelated reason, it can create problems during your bankruptcy.
If you’re a parent and you’re concerned about how filing for bankruptcy could affect your children, we can help. Contact R. Flay Cabiness, II, P.C. at (912) 554-3774 (Brunswick, GA); (912) 375-5620 (Hazlehurst, GA) or; (912)-554-3756 (Jesup, GA) to schedule a consultation to discuss your circumstances.
