When you're a parent, you have to consider how your children will be affected by every move that you make. Your finances most definitely impact your child, and if you suspect that you might need to file for bankruptcy in the near future, then you'll definitely want to know how that decision will affect your kids. Take a look at some things that you need to know about Chapter 7 bankruptcy and your children.
Your Children's Possessions
Essentially, in a Chapter 7 bankruptcy, you're agreeing to give up any non-exempt property to be liquidated, and the proceeds will go to pay off your creditors. However, some property is considered exempt. Things like your primary home and car, your household appliances, jewelry up to a certain value, and home furnishings and clothes considered reasonably necessary are exempt.
Technically, anything in your home that you bought for your child is considered yours, even if you've gifted it to them. It's only considered theirs if they bought it with their own money and you can prove that. That means, in theory, that some items belonging to your child could be up for grabs. Realistically, however, used children's clothes, toys, and furniture are not valuable enough to liquidate and would not be taken in a bankruptcy. However, you may have to worry if your child has an expensive musical instrument or if your child drives a second car that's titled in your name.
Your Children's Bank Accounts
Many people start bank accounts of some sort in their children's names, either to ensure that they have funds for a future endeavor, like college, or just to teach them the value of saving and budgeting money. If you have a regular savings or checking account in your underage child's name with yourself listed as an account holder as well, then this will be considered one of your assets and may be used to pay off your creditors.
Money in a bank account set up under the Uniform Transfers to Minors Act (UTMA), however, is not considered an asset and will not be up for grabs in a bankruptcy. Only your child is the beneficiary of one of these accounts, and your child won't be held responsible for your debts. Be careful, however, of transferring money to this account shortly before filing bankruptcy. If it's determined that you're using a UTMA account to hide funds from your creditors, your transfers could be voided.
If you have a 529 college savings plan for your child, it may be protected up to a certain extent. Money deposited in this account more than two years prior to the bankruptcy is fully protected, and if the money was deposited one to two years ago is protected up to $5000. Money deposited within the last year, though, is not protected.
College Loans
If you have a teenager that will be applying to college soon, you may be worried about how your bankruptcy will affect your child's application for financial aid. Unless they meet certain requirements, like being married or serving in the military, most incoming college freshmen are considered dependent students and need to use their parents' financial information when filling out the Free Application for Federal Student Aid.
The good news is that even with a bankruptcy on your record, your student will still qualify for loans if they need them. You may not qualify for Parental Loan for Undergraduate Students (PLUS) loan with a recent bankruptcy on your record, but your student will qualify for an expanded Stafford loan if you're denied for a PLUS loan, so they will have the money they need to attend school.
Child Support
If you're under a court order to pay child support, that debt is not dischargeable in a bankruptcy loan. You will still owe that money and you will still need to make your monthly payments. In fact, if you're behind on your child support payments, the arrears will be the first thing that will be paid once your assets are liquidated. If you're the recipient of child support payments, filing for bankruptcy won't affect those payments.
The decision to file for bankruptcy can be a tough one, and it affects everyone in your family. Consult with a Chapter 7 bankruptcy attorney to find out about all your options and all the consequences of a bankruptcy before you make any final decisions. Visit websites like http://www.morrisonmurfflaw.com to learn more.
Share27 May 2016
Hello, my name is Neil Gamford. Welcome to my site about bankruptcy proceedings. After my divorce, I was left near penniless and without a place to stay. I was paying all of my income to alimony and my remaining debts. Although I had a solid payment plan in place, it was getting difficult to cover my financial obligations without a home. Luckily, I met with a bankruptcy attorney, who helped me find a way to discharge my debts and start over. I hope to share the information I learned throughout that process with you through this site. Please feel free to visit anytime.
