Declaring bankruptcy can be a difficult choice. It can be even more complicated if you have a family and children to think about. If you are overwhelmed by debt, then declaring bankruptcy can give your family a clearer path forward. However, you might need to think about a few things if you have children and if you're attempting to clear up child-related debts.
1. Do a Child's Possessions Count Towards Bankruptcy?
A minor child's possessions are still considered to be under the ownership of their parents. In most situations, this isn't going to matter. Most bankruptcies aren't going to be concerned with toys, furniture, and clothing. These items aren't worth enough to liquidate and will usually be worth so little that it falls under exemption amounts.
However, it's always possible that a minor child could have substantial enough possessions that it would matter. For instance, a 16-year-old child could have a $25,000 vehicle. In that situation, the vehicle's equity would need to fall under the vehicle exemption amount, or it might be liquidated.
Bank accounts are a special matter. Most bank accounts are going to be your child's property, as long as it is set up in your child's name with you as a custodian. A child's bank account may also be in a trust. These cannot be touched during bankruptcy.
2. Can Child Support Payments Be Discharged?
Some people have a lot of debt from child support payments. These cannot be discharged, just like student loans. However, discharging your other debts can easily make your child support payments more manageable. Child support payments will not be discontinued during the process of bankruptcy, like other payments. You will need to pay your child support throughout.
3. Are Educational Savings Accounts Impacted?
Like retirement funds, educational savings accounts are protected from the action of bankruptcy. However, there is a caveat. The beneficiary of the ESA has to be a direct relative to you: a child, grandchild, stepchild, or step-grandchild. You cannot hold an ESA for yourself or for your spouse.
Further, your bankruptcy trustee will look at when money was put into the ESA, just as they will look at when money was put into your retirement account. If you put money into the ESA fewer than 365 days before the bankruptcy, they may still be impacted by the bankruptcy, as it may be thought that the money was put away intentionally.
4. Could Your Child Be Otherwise Impacted By Bankruptcy?
Your child can be impacted by bankruptcy in a way that you may not anticipate. Children may have limits on their private school tuition. If your children are currently going to private school, then you may not want to declare Chapter 13 bankruptcy. Chapter 13 bankruptcy creates a payment plan for you to pay off your debts; it does not have room in it for additional educational expenses.
However, Chapter 7 bankruptcy does not concern itself at all with your future expenses, including your private school tuition. Thus, if your children are currently attending private school, then Chapter 7 bankruptcy is the best choice.
Ultimately, though bankruptcy may have an impact on your children, it's almost always better to address your financial situation sooner rather than later. By declaring bankruptcy, you'll be able to eradicate the bad debts that are holding you back, and you can move forward and start building a better financial future for your entire family.
If you want information about declaring bankruptcy and how it'll impact your children, then contact the experts at the Law Office of Cowan & Brady. We look forward to helping you.