A common concern our clients have is how bankruptcy affects their children. It’s a fair question. Why should your children suffer because of your financial situation? Fortunately, the effect that bankruptcy has on your children is typically minimal. That being said, there are certain things to consider. Today we’ll go over some of the issues that can possibly pop up, and remember to always consult with your bankruptcy lawyer for advice on your unique situation.
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The first thing you may wonder is if you have a bank account for your child, will bankruptcy subject those funds to being seized? For the most part, their bank account funds will be exempt from creditors. The money belongs to your child, even if you’re a custodian of the account. However, money that is deposited within a short amount of time before bankruptcy is filed will be subject to scrutiny. You can’t simply transfer money into your child’s account to protect your own assets. The time periods sometimes vary, but funds transferred within the last 365 days may be able to be obtained by creditors.
A 529 educational fund will most likely also be exempt from bankruptcy. As long as the beneficiary of the account is your child, the money in this account will be protected. However, the same rules that apply to the bank accounts we discussed earlier apply here. In fact, the rules for these accounts are a bit more specific. Funds deposited in the last 365 days are eligible to be seized in bankruptcy, funds deposited between 365 and 720 days are exempt up to the amount of $6,225, and anything deposited over 720 days is completely exempt. Consult with your bankruptcy lawyer to make the best decision when you have funds in a 529 account.
Your Children’s Property
Unless your child specifically paid for their clothes, furniture, toys, etc, they’ll be subject to being seized in bankruptcy. Since you bought these items for your child, it’s considered your property. This is only something you have to consider when filing Chapter 7 because it deals with the matter of exempt and nonexempt property. Luckily, these items typically aren’t taken unless they are of significant value. Ask your bankruptcy lawyer what property could possibly be taken to get a better idea of your situation.
Trust a Bankruptcy Lawyer from Groce & DeArmon, P.C.
Everyone has a unique case, so trust a bankruptcy lawyer who will take the time to fully understand your situation. At Groce & DeArmon, P.C., we can advise you on the best course of action and help make filing bankruptcy as easy as possible. Contact us today to schedule an appointment with a bankruptcy lawyer, or view our website for more information.