Legal process are different in every country of the world. However, there are certain generalities that are usually universal. If you are considering bankruptcy, there are several ways your actions might affect your children.
Photo: jpcolasso, Flickr Creative Commons
Bank Accounts and Trust Funds for Minor Children
If you have created a trust fund for your children, it will be reviewed as part of your bankruptcy case. However, the bankruptcy trustee will take into consideration that the money deposited into the trust is technically not yours--you can't even withdraw it yourself.
If you made a significant transfer of money into this trust shortly before filing bankruptcy, it will look suspicious though. If, at the time you made the transfer, your debts amounted to more than your assets, the bankruptcy trustee may be able to get those funds back.
Similarly, a child’s bank account is usually off limits to a bankruptcy trustee. If you opened an account in your child’s name, you had to also sign the account if the child was a minor. However, the account is considered the child's property--and not eligible for consideration--if you can prove that it isn’t your money that gets deposited there (e.g. cheques from Grandma for birthdays, etc.).
Be sure to declare any of these questionable accounts. Failing to do so will make it look like you are trying to hide assets.
At the time of the transfer, it might seem totally natural to give things to your child. For example, if Bobby is going off to college, you might want to give him the title to the car he is driving.
However, such actions might raise eyebrows in a bankruptcy court. If you transferred an asset up to two years prior to filing, you’ll need to declare in in the bankruptcy process.
If the court thinks you made the transfer as an attempt to give things away before filing, the bankruptcy trustee may take the asset (in this case, your son’s car) and sell it for cash.
Will the bankruptcy trustee come in and take all your child’s toys? What about your baby’s crib? Will he be sleeping on the floor from now on?
There is no hard and fast rule when it comes to your children’s property. The answers to these questions will depend on the type of bankruptcy you file.
Some forms of bankruptcy allow you to keep all your possessions; other forms will allow you to keep only some.
Generally speaking, your child’s possessions will be exempt from the bankruptcy filing. The trustee isn’t interested in furniture or household items that have very little value. If, however, your child has lots of expensive things, they may come into question.
Usually, a parent’s bankruptcy won’t interfere with a child’s qualification for student loans. For example, many need-based grants are still available.
There are some forms of student loans that allow the parent to acquire the money on the child's behalf. Parents will have to wait five years from the conclusion of the bankruptcy case to qualify for these types of loans.
Getting Professional Help
No one should blindly proceed with bankruptcy on their own. But this is especially true if children are involved. Talk with a bankruptcy lawyer to ensure your children’s best interested are attended to.
Also, consulting a lawyer means you could find bankruptcy alternatives. There might be ways to negotiate your debt or modify loans that could help you avoid the process all together. These bankruptcy alternatives would likely have a much less noticeable effect on your children.
Have you filed for bankruptcy? If so, would you mind telling us how it affected your children?