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By Rennee R. Dehesa, Esq.

Filing for bankruptcy often represents the last gasp following a period of mounting stress and emotional turmoil. If you have reached the point of seeking relief in bankruptcy court, you have probably investigated and exhausted every available option to keep your finances intact. In addition to financial considerations, you should carefully think through how filing bankruptcy will affect your children.

Who Owns What?

The line between your assets and your child’s assets can become blurred in the context of your bankruptcy case. If you established a bank account for your child, but did not take the necessary steps to set it up correctly, it may not be protected from creditors during your bankruptcy because the money in that account may be deemed your money and not your child’s. Parents typically encounter this problem if the account was established only in the parents’ names, and not the child’s name, or if the parents have used the account to pay their own bills. To protect your children’s account from your bankruptcy, the account should be established under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act.

College Tuition Assistance

If you are currently contributing money toward your child’s college fund or tuition payments, your bankruptcy filing could put a stop to it. When a debtor files for bankruptcy, creditors and the court strive to limit how much your monthly expenses are, to preserve as much “disposable” income for repayment as possible, and may place a higher priority on debt repayment than your child’s education. Bankruptcy courts allow for “necessary” expenses, including housing, food and utilities; however, your child’s educational expenses may not be considered essential. The amount of any such payments may be added to your disposable income available to repay your debts under Chapter 13, or may disqualify you for Chapter 7 under the means test calculation.

Bankruptcy and Child Support

Child support payment obligations are not eligible for bankruptcy discharge, and children are protected from bankruptcy regardless of whether a parent is behind in making the payments. Under Chapter 7 bankruptcy, child support payments are considered a top priority when assets are liquidated to raise cash for creditors. Under Chapter 13, the required child support payments are addressed in the repayment plan. Ideally, the bankruptcy itself will make it easier for the parent to keep current with support obligations by reducing other payment obligations.

About the Author
Theodore J. Schneider practices in the areas of business and corporate transactions, employment law counseling, municipal and public law, real estate and land use, and homeowner associations. Ted began his legal career in 2002 when he joined the Los Angeles office of Gibson, Dunn & Crutcher, L.L.P. before relocating to Ventura County to join his father in practice.