Being deep in debt can put a strain your household. Fortunately, filing personal bankruptcy is an option for single and married parents to obtain long-term relief from rocky financial situations. But before you file, keep in mind that bankruptcy can affect your children in the following ways.

3 Ways Personal Bankruptcy Can Impact Your Kids

1. Child Support

If you’re behind on child support, filing personal bankruptcy doesn’t wipe out those past-due amounts. However, a Chapter 13 bankruptcy lets you set up an affordable payment plan over three to five years and avoid wage garnishment.

Another option is wiping out your credit card and medical debts under Chapter 7, which gives you a fresh start and frees you to resume meeting your support payment obligation.

2. Education Expenses

Private tuition for K-12 schools may not be allowed in a Chapter 13 filing. If you seek federal debt relief and have money saved for your children’s higher education using Hawaii’s 529 program, but it’s in your name, the funds aren’t protected from the bankruptcy trustee. However, if your children are named as beneficiaries, the funds may be safe, depending on when you made the deposits.

Your kids might have to take out student loans in their names for their higher education.

3. Children’s Financial Accounts

When filing bankruptcy, you must list all of your financial assets. If you have bank accounts or other financial holdings set aside for your minor children, the trustee may want to count those as your assets.

To protect your children’s property rights, place the funds in a trust with the children as beneficiaries or convey the assets under Hawaii’s Uniform Gifts to Minors Act or Uniform Transfers to Minors Act. A bankruptcy attorney will help you handle the transactions to avoid fraudulent transfers and adverse tax consequences. 

If you’re struggling with debt affecting your family, get help from Donald L. Spafford, Jr., Attorney at Law in Honolulu, HI. Offering clients more than 30 years of experience, he and his team of legal professionals will provide a personalized analysis of your finances to advise you of the best solution for the situation. Call (808) 532-6300 to schedule a free consultation today.