Will filing Bankruptcy affect my children’s finances?

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ATTY. CRISPIN CADAY LOZANO

Most people understand that a bankruptcy filing has emotional consequences for their entire family. Those with children should also understand before filing that there are financial impacts on the kids as well.

Question: Is Child Support Dischargeable in Bankruptcy?
Answer: No. If you or an ex-spouse files for bankruptcy, debts resulting from child support will not be discharged by bankruptcy. In a Chapter 7 bankruptcy filing, child support obligations become top priority when assets are being liquidated. In a Chapter 13 bankruptcy filing, child support payments will be structured within the agreed repayment plan.

This bankruptcy protection for children applies whether or not a debtor is behind on support payments. The good news is that ex-spouses may find it easier to fulfill their child support responsibilities since the bankruptcy may alleviate a majority of their debt burdens.
Question: Does Bankruptcy Court Allow Contributions to College Education?

Answer: The consequences of bankruptcy could be uncertain if you contribute funds towards a child’s college tuition or to a future college fund. In some cases, bankruptcy courts or creditors may attempt to disallow these contributions, and prioritize their collection accounts above your children’s education. If you find yourself in this unfortunate situation, it is strongly suggested you consult with a bankruptcy lawyer to find out how your child’s education may be affected.

When an individual files for bankruptcy, the court and creditors will attempt to limit the amount of debtor expenses. Typically, the bankruptcy courts will allow necessary expenses such as housing payments, utilities, food, transportation, and medical expenses. As for luxury and entertainment expenses, the bankruptcy courts will view these less favorably.

Question: Is My Child’s Bank Accounts Safe from Bankruptcy?
Answer: Bankruptcy can sometimes complicate the distinction between your assets and your children’s assets. If you’ve opened a bank account for your child’s birthday money, gift money from relatives, or funds for college tuition, it’s important to make sure this account is set up correctly. If the account is just under your name or if you’ve drawn money out to pay your own bills, these funds could jeopardized by your bankruptcy filing.

Opening accounts under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) can help protect your child’s assets. These two methods are convenient, less costly, and less complicated than their trust fund counterparts. In essence, the “giver” remains custodian of these accounts until the minor reaches majority. Once the money is transferred into these custodial accounts, it can’t be taken back–and thus is better protected when you file for bankruptcy.

If you think your child’s future could be jeopardized by bankruptcy, a bankruptcy lawyer can examine all the details and clear any confusion.

Take Note: This is not a legal advice.
Bankruptcy Basics
1. Bankruptcy will actually improve your credit within one year because your unsecured debts are discharged. Although the bankruptcy will be in your records for 10 years, not filing bankruptcy will make your credit even worse until most your debts are paid.
2. If you are being sued by your creditors, most money judgment can be eliminated in bankruptcy.
3. Collection actions continue and you can be sued if you are in debt settlement.
4. Chapter 7 will eliminate all unsecured debts. If you are near retirement age, you must eliminate most of your debts.
5. Bankruptcy will stop foreclosure actions. If your trustee sale date is 10 days before, you can still file for bankruptcy.
6. If your salary is being garnished, you have a court case about debts or you are being harassed by creditors, bankruptcy can stop garnishment, court cases, harassing creditors and eliminate the debt.
7. Bankruptcy is cheaper, faster and safer than debt settlement which has no guaranteed success.
8. Preserve your health, eliminate stress and live a happy life by eliminating your debts which is the root of all problems.

Crispin Caday Lozano is an active member of the State Bar of California, the American Immigration Lawyers Association and the National Association of Consumers Bankruptcy Attorneys. He specializes in immigration law and bankruptcy law. He also handles Personal Injury and IRS tax debt representation. To make an appointment please call 1-877-456-9266, for a free and confidential consultation.

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