Costs of Daycare & Preschool and Bankruptcy

Children are a blessing, but the high cost of daycare and preschool tuition has caused financial hardships for countless families. In an effort to pay for their children’s needs, some parents may take out substantial personal loans, deplete savings accounts, and rack up credit card debt. But at some point, they’ll run out of options. If it’s time to file for bankruptcy, the prohibitively expensive cost of daycare and preschool can actually work in a parent’s favor. A bankruptcy lawyer can guide parents through the process of restoring financial security.

Median Income

With your focus on your own finances, you probably haven’t given much thought to the median income for your state. But if you want to file for Chapter 7 bankruptcy, median income is quite relevant. Chapter 7 bankruptcy involves turning over nonexempt assets to a bankruptcy court trustee, who liquidates the assets to pay your debts. Any remaining debts are discharged, and you won’t have to pay them. However, not everyone is eligible for Chapter 7. To find out if you are, your attorney will compare your monthly income to the median monthly income for your state. The income is adjusted by household size. If your income is lower than the median monthly income, you’re eligible to file for Chapter 7.

Means Test

If your income isn’t less than the median income for your state, your lawyer will complete the rest of the means test to see if you could still be eligible for Chapter 7 bankruptcy—and this is why your sky-high daycare and preschool expenses might actually be a blessing in disguise. You’re allowed to deduct your monthly daycare and preschool expenses from your monthly income, but only if the court sees them as a necessary expense. For example, if you and the other parent work, the court will consider child care expenses necessary. If one household member is a stay-at-home parent, it’s unlikely that the court will allow deductions for daycare.

At Cutler & Associates, Ltd.—a bankruptcy law firm—we understand the unique financial challenges that parents face. Let our knowledgeable and friendly lawyers help your family get back on track.