If I file for bankruptcy, how can I protect what belongs to my children?

As parents, we want to make sure that our children are protected and the same holds true when considering a bankruptcy. 

Kids' Stuff and your bankruptcy

In Chapter 13 bankruptcy, for the most part you will be keeping your property. In a Chapter 7 bankruptcy, you are allowed to keep property that is "exempt", or protected up to a certain dollar value - depending on what it is. One of the questions that your bankruptcy lawyer will ask, and will report on your bankruptcy schedules, relates to what you have at home by way of furniture, electronics, and what most people think of generally as "stuff". When mentally arriving at their childrens' rooms when answering this question, people invariably say something like "the bunk beds, a desk, computer, dresser... but that isn't mine, it belongs to my son/daughter". If your child lives with you and these are items that you bought for him or her, the bankruptcy court considers it as being yours. On the other hand, if your child is older and paid for it himself and you can prove it, then it doesn't count as part of what we call the bankruptcy estate. Don't stress out to much over this unless there is something in your kid's room of great value. Most people in a chapter 7 actually find that the items in their home are not worth more than what you are allowed to keep and even so, most bankruptcy trustees will not be interested in taking your child's desk.

Kids' Bank Accounts and your bankruptcy

If your child has an account set up under the Uniform Gifts to Minors Act or the Uniform Transfer to Minors Act (I can help you figure this out if you aren't sure), your child's money is safe, even if you are the custodian of those accounts. Likewise, if they have 529 Educational funds set aside for college, this is not legally your money and therefore is safe from your creditors and from the bankruptcy trustee, depending on when in time the money went in. That being said, as with anything in bankruptcy, you have to beware of the timing and be sure that it did not get transferred into your child's account for purposes of your bankruptcy filing, which is a huge no-no. 

Bankruptcy is complex but doesn't have to be scary. Once in the right hands, your bankruptcy lawyer will answer any questions that you have about your children's money and personal property. We don't want to do anything that doesn't make sense for you or your family. If you are considering filing for bankruptcy and want to know more about how this could affect your kids, give us a call at 630 250-8813 to schedule a free bankruptcy consutlation in Schaumburg or Itasca. 


Carol O'Connor Cadiz
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Attorney & Owner at O'Connor Cadiz Law: Injury & Accidents, Disability Insurance.