Financial woes come and sometimes you have to bite the bullet and file for bankruptcy. Feeling it is an adult issue, you might not have thought about how it exactly affects your children now and in the future. Taking a step back from yourself and looking at how it will affect your children is wise before filing for bankruptcy.
You have done everything to provide for your children from opening a savings account to providing clothing and bedroom furniture. In a legal sense, all property, including your children’s is considered yours. Depending on which bankruptcy you file, you could keep all of your things (Chapter 13) or only things that are considered exempt (Chapter 7). However, bankruptcy does not really look at used property such as clothing, furniture and household items as valuable items, so it is close to safe to say you will be able to keep most of your children’s belongings. However, your children’s bank accounts may not be safe. Legally the money belongs to the children, so no money can be touched by creditors. With that in mind, recommendation is to not transfer any of your personal money into their account prior to filing for bankruptcy, as it looks suspicious and a Chapter 7 trustee can attempt to take all of the money in the account.
Child support is not dischargeable in bankruptcy and must still be paid. Child support is considered a priority debt, and is paid out when assets are sold out in Chapter 7. In Chapter 13, child support is paid before other creditors.
Paying for school also has some stipulations. If you are to invest in a 529 Education Fund, it must be for your child, stepchild, grandchild or step-grandchild, and deposits must be made 365 days prior to filing for bankruptcy. If you made deposits between 365 to 720 days before filing you are exempt $5,850 per child, and after 720 days or more before filing everything is exempt.
If your child attends a private elementary or secondary school, it will depend on your Chapter 13 case whether or not you will be allowed to continue paying for that tuition. A maximum of $147.92 per month per child will be allowed.
Lastly, financial aid like Pell Grants and Stafford Loans do not affect your child. However, credit based financial aid as in Parental Loan for Undergraduate Students (PLUS) and Graduate PLUS loans are not truly available if you have filed for bankruptcy within the past 5 years. But with that, your child then is more able to receive Stafford Loans.
If you are considering filing for bankruptcy, find the best representation in a qualified Arizona bankruptcy attorney today to help you through the process.