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How Will Bankruptcy Affect Your Children? February 10, 2020

Downtown Honolulu, Honolulu
How Will Bankruptcy Affect Your Children?, Honolulu, Hawaii

When you’re struggling with overwhelming debt, filing a Chapter 7 or Chapter 13 bankruptcy can provide your family with a fresh start. However, the process opens up your finances to intense scrutiny, which may be concerning if you have children. Before determining if this is the right solution for your situation, learn how bankruptcy could potentially affect your children.

3 Ways Your Children Could Be Impacted by a Bankruptcy Filing

1. Personal Property

Bankruptcy requires you to disclose everything you own. This includes your children’s clothing, furniture, toys, and electronics, unless you have receipts to show they were purchased with money your child earned themselves.

If you file Chapter 7, a bankruptcy trustee may sell your assets to pay off creditors, though many exemptions allow debtors to keep most of their property.

A Chapter 13 bankruptcy reorganizes debts into an affordable repayment plan and doesn’t involve the liquidation of assets. Thus, in most cases, there’s a low risk of your children losing their belongings.

2. Bank Accounts & Educational Funds

Chapter 13 bankruptcyAny bank accounts your children hold will also be considered part of the bankruptcy estate if your name is on them. To protect the funds, you must show proof that they belong to your child or include them in your exemptions.

You can avoid this possibility by setting up your children’s financial assets in an account under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act. Creditors can’t touch the money in these accounts as long as deposits aren’t made fraudulently before your bankruptcy filing. Educational funds, such as 529 savings plans, are treated in the same manner.

Additionally, your children will generally still be able to attend private school, but a tuition limit will apply if you’re filing a Chapter 13 bankruptcy.

3. Child Support

In most states, child support funds that a debtor has accrued will be exempt from their bankruptcy filing. It will still need to be listed as an asset to keep it safe, and it’s helpful if you have proof that the money came from child support.

On the other hand, if you owe child support, bankruptcy will not alter this financial obligation in any way. This is a priority debt that must continue to be paid.


If you’re wondering whether or not bankruptcy is the best debt relief option for your family, contact Greg Dunn, Bankruptcy and Debt Relief Attorney to discuss your specific circumstances. He understands that filing is a difficult decision with a variety of factors to consider and will provide you with valuable legal advice to reach your financial goals. For nearly 25 years, he’s helped clients across Oahu navigate the Chapter 7 and Chapter 13 bankruptcy process. Call (808) 524-4529 to schedule a consultation, or visit him online for more information about his services.

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