It is hard to tell your children that you are going bankrupt, but there are ways that you can help them and yourself to make this process easier. Being able to go on with your life as smoothly as possible when filing for bankruptcy will help you transition your family and prepare them for life after the fact.
Children’s Bank Accounts
Thankfully, the money that is held in trust for your child is not property of the bankruptcy estate. This means that any money opened in either the Uniform Gifts to Minor Acts or the Uniform Transfers to Minors Act is protected as long as you can prove that money is your child’s and your child’s only. You have to declare the account in your assets as well so it is not treated as a hidden asset. If the account is in the child’s name, it is not your property and therefore doesn’t belong to you.
Child support payments are not able to be let go when filing for bankruptcy. Chapter 7 says that child support payments remain a priority when your assets are being settled. Child support payments have to continue during the bankruptcy which may be hard at first, but becomes easier when your debt is settled.
Child’s Property and Possessions
For Chapter 7 bankruptcy, the bank has to go through and liquidate assets to help pay off debt. Children’s assets are mostly excused from this rule, however if it a luxury item like expensive electronics for instance, these are items that could be taken to help pay back debt. Property, such as furniture and clothing, are given to the child but not bought with their money, therefore still belong to you and is eligible to be taken. If there is a way that you are able prove the property or possessions was bought with the child’s income and is not in your property then it is free from your bankruptcy estate.
College Education Loans
There are many ways college loans can be handled when filing for bankruptcy. Your child will not be prevented from taking out student loans, but you yourself can not take out any financial aid loans for your child. You can’t take out a PLUS loan while declaring bankruptcy however your child will be granted access to increased unsubsidized Stafford loan limits when denied a PLUS loan.
Filing for bankruptcy can be complicated, but it doesn’t have to be. Contact me to schedule a consultation to learn more about the bankruptcy process.