As a parent, the decision to file bankruptcy doesn’t only affect you. You also have to weigh the potential impacts of your filing on your children. Your bankruptcy lawyer can provide you with advice about how the specific details of your case could affect your children, but there are some general guidelines you can keep in mind. Here is what you need to know.
Household Property
Things in your household are considered to be your property, even if your child uses them. Furniture in kids’ rooms, kids’ clothing, and kids’ toys are all counted as your belongings in your bankruptcy. In a Chapter 13 bankruptcy, you will not be required to give up any of your property, so you don’t have to worry about the things in your household that are used by your children. During a Chapter 7 bankruptcy, although your property could be sold to pay for your debt, in most cases, your children’s items will not be taken, as they are seen as having little resale value.
Educational Funds
During bankruptcy, 529 funds may be protected, depending on the beneficiaries and when you make the deposits. If you make deposits into a 529 fund within the 365 days prior to filing, that money is not exempt. For deposits made between 365 and 720 days, up to $6,225 per account beneficiary is exempt. Money deposited before 720 days prior to filing is fully exempt, except in states that override this federal law. A bankruptcy filing will not interfere with your child’s ability to apply for need-based student loans, but you may not be allowed to pay private school tuition under your bankruptcy agreement.
Children’s Financial Accounts
Money in children’s bank accounts is not touchable during a bankruptcy. However, if you file for Chapter 7 bankruptcy, your trustee will look for the deposit history of these accounts to see if you made suspicious transfers before filing to protect assets. If you did, these deposits may be taken.
At Cutler & Associates, Ltd., our bankruptcy attorneys in Schaumburg and across the Chicago area will help you protect your children from financial fallout from your bankruptcy by choosing the right filing type for your needs.