When many people think of bankruptcy, they might think of someone who has horrible spending habits, is facing mountains of debt, and is looking for an “easy” way out. While this may describe some of the people who file for bankruptcy each year, there are thousands of hardworking families who struggle with similar financial problems. Filing for bankruptcy does allow many families to get a fresh financial start, but it’s not an easy decision to make.
As a parent who may be considering bankruptcy, you might be wondering how or if it will affect your children. Learn more about how filing for bankruptcy can affect your children and their financial and educational future.
Does Bankruptcy Affect Your Child’s Financial Well-Being?
You work hard to provide for your family and give your children everything they need and want. If you are facing financial hardship, you are likely to make personal sacrifices to ensure that your children are taken care of and can continue to live a “normal” childhood.
Facing financial hardship and raising a family are two challenges in themselves, but even more difficult when combined. Don’t worry; you’re not alone.
If you’ve weighed all of your financial options and are strongly considering bankruptcy, you’re thinking about how it will affect your children and what, if anything, will they lose?
Your Child’s Property
We’ve all heard stories where people who file for bankruptcy literally lose everything, and their home is more or less emptied out. The thought of your child losing any of their possessions is heartbreaking and unfair.
Whether you file Chapter 13 or Chapter 7, most of your child’s belongings (particularly bedroom furniture, clothing, and even toys) will not be seized. Most children’s belongings like these are considered “low value” and are not at risk of being taken away.
Money Belonging To Your Child
If your children have their own bank accounts, their money belongs to them and has little to no risk if you decide to file for bankruptcy. It is important to remember, and it’s strongly recommended by financial experts, not to transfer money into your child’s bank account immediately before you proceed with filing for bankruptcy. This kind of activity can raise red flags.
Your Child’s Educational Future
Aside from your children’s health and safety, their education is a top priority for most families. Financial hardship can put a hold on many future plans, but in most cases, filing for bankruptcy will not likely negatively impact your child’s education.
If your child goes to a private school where you pay tuition, you may not be able to pay for tuition. Private tuition is determined on a case-by-case basis in regards to filing for bankruptcy and whether or not you filed for Chapter 7 or 13.
If you have 529 Educational Funds set up and started for your children, they are likely to not be affected by bankruptcy. Of course, with all financial aspects, your education funds may be examined differently, but in most cases, these types of funds are not affected.
Additionally, bankruptcy doesn’t always negatively impact your child’s chance to earn financial aid. You will not qualify for certain loans, but your child may be eligible for Stafford loans.