A parent may worry about how a bankruptcy filing will affect their children. They may wonder whether their children will lose financial and educational savings accounts, or if they won’t be allowed to attend private school. Worries over child support and college loans are also common. In this guide, some of those concerns will be addressed.
The property in the household, including the children’s toys, clothing and furniture, is considered the parent’s. However, if it can be proven that the child paid for an item, it won’t be included in a bankruptcy estate. In Chapter 13, the client keeps all of their property; in Chapter 7, clients keep all exempt assets. Even if a child’s belongings aren’t exempt, a parent will likely keep them during bankruptcy because trustees aren’t interested in household items unless they’re valuable.
Children’s Bank Accounts
Money held in a trust is not included in the bankruptcy filing. For example, if a parent is the custodian of certain types of accounts, they can’t withdraw the money, and the bankruptcy trustee can’t access it. Any money transferred into such accounts before a filing will be viewed suspiciously. If someone is insolvent at the time, the bankruptcy trustee can typically get the money. A bankruptcy Attorney in Topeka KS can provide more details.
These payments aren’t dischargeable in Chapter 7; they’re treated as priority debts and they’re paid first when assets are liquidated. Debts for medical bills and educational expenses are also excluded. Child support must be paid before a Chapter 13 discharge can be granted or the repayment plan can be confirmed.
Section 529 accounts offer substantial tax benefits and creditor protections, and they’re not included in a bankruptcy estate. This means that the bankruptcy trustee can’t collect from a child’s college fund, with limitations. The beneficiary must be an immediate relative, and parents can’t set up 529 funds for themselves. Private and secondary school tuition might not be allowed during Chapter 13, and it’s allowed in Chapter 7. Additionally, bankruptcy doesn’t affect a child’s ability to get certain college loans. Schedule an appointment to consult a bankruptcy Attorney in Topeka KS or visit Joewlaw.com for more details.