How Will Filing Bankruptcy Affect My Children?

How Will Filing Bankruptcy Affect My Children?

Most families find that bankruptcy has little to no direct negative impact on their children. In many cases, it actually improves the family’s overall well-being.

Here’s a quick overview of the most common concerns parents have, and how filing bankruptcy typically affects them:

• Your kids usually won’t lose their personal belongings. Toys, clothes, and school supplies don’t have much resale value and are often protected by exemptions. In most cases, the bankruptcy trustee won’t be interested in these items. Even if something like a car or bank account is involved, it’s only a concern if it’s in your name and has enough value to help repay creditors.

• If you receive child support, it won’t be affected. And if you owe child support, filing bankruptcy — especially Chapter 13 — may help you catch up on missed payments while stopping wage garnishments or other collection efforts.

• Your child’s income usually isn’t counted in the means test. Unless your child is helping cover household expenses, their income likely won’t impact your eligibility to file Chapter 7.

• Education-related expenses and savings may be affected, but protections exist. Things like private school tuition and college savings plans (like 529 plans or Coverdell ESAs) might come up in your case, but many of these accounts have exemptions that can help protect the funds.

In the long run, bankruptcy is a tool that can help you get back on stable financial ground , which can create a more secure and less stressful environment for your kids. Most parents who file say the relief from overwhelming debt allows them to better focus on their family’s future.

Will the Bankruptcy Trustee Take My Child’s Things?

It’s very unlikely that the bankruptcy trustee will take any of your child’s belongings. Most children’s items — like toys, clothes, sports gear, or school supplies — don’t have any resale value. Because of that, the trustee usually won’t be interested in them.

That said, the law generally treats anything your minor child owns as something you technically own. So if an item does have real value, it could become part of your bankruptcy case. This is rare, but it can happen. For example, if your child owns a valuable gaming system or a collectible item — like a baseball bat signed by Hank Aaron or Babe Ruth — the trustee may look into whether it could be sold to help pay off your debts.

In most cases, though, everyday items your child uses aren’t worth enough to matter in a bankruptcy case

Will the Trustee Take My Kid's Car?

In most states, kids under 18 can’t legally have a car titled in their name. So if your child drives a car, there’s a good chance it’s actually titled in your name, even if they’re the only one using it. If that car is fully paid off and you’re already using your vehicle exemptions on other cars, the bankruptcy trustee might see it as unprotected property. That means they could sell it to help pay your creditors.

If you're thinking about transferring the car title to your child now that they're old enough — be careful. Transferring assets to someone else right before filing bankruptcy can raise serious concerns. Even if your child has always used the car, moving it out of your name now may be considered a fraudulent transfer. Bankruptcy trustees can undo those types of transfers and still take the car if it has value.

What if You're a Custodian for Minor Bank Accounts?

If your child has a bank account — like a savings account or custodial account — the trustee usually won’t take any money from it unless there’s a clear reason to do so. One red flag would be if you recently made large deposits into that account to try to shield money from your creditors. In that case, the trustee may investigate further.

Even if the trustee doesn’t plan to take the money, they may still ask to review recent bank statements for the account. So it's a good idea to have those ready just in case.

Is My Child’s Work Income Included for the Calculation of the Means Test?

The means test is used to figure out whether you qualify for Chapter 7 bankruptcy based on your income. If someone in your household earns money — including your child — that income might need to be included. But in most cases, a child’s work income won’t count.

The key question is whether your child’s income helps cover household expenses. If your child uses their paycheck to go to the movies, buy clothes, or pay for their own activities, that money usually doesn’t count in the Means Test.

However, if your child regularly contributes to rent, groceries, utilities, or other shared household bills, the trustee may include that amount when calculating your total household income. This would also show up on your bankruptcy paperwork under Schedule I, which lists all income sources in your household.

Every situation is different. If you aren't sure how your child’s income might affect your case, many people choose to get a free consultation with a bankruptcy attorney to better understand how the means test works.

Will the Trustee Take My Child’s Income?

Typically, no. Chapter 7 bankruptcy trustees don't usually take children's income. Many states also provide exemptions for the earnings of a minor, protecting what your child may have saved up from their job. 

How Bankruptcy Affects Your Child’s Education Costs and Savings

Bankruptcy usually doesn’t stop you from paying for your child’s education, but it may affect how certain expenses and savings accounts are treated in your case. Here’s how some common education-related issues might come up:

Private School Tuition

If your child attends private school, this expense might be partly allowed in your Chapter 7 bankruptcy case, but only under specific rules. Only a portion of private school tuition can usually be considered a reasonable expense. The amount changes every three years. The current means test form shows the monthly allowable expense as $214.58.

If you file Chapter 13, the court may not allow you to deduct any private school tuition at all unless you’re paying 100% of your unsecured debts through your repayment plan. In some districts, trustees and judges are more flexible and may allow up to the same amount permitted under the means test. It depends on where you file and how your case is handled.

If the tuition expense isn’t allowed in your Chapter 13 bankruptcy budget, some parents choose to pay it from a 529 plan or a Coverdell Education Savings Account (ESA). These accounts can cover qualified education costs, including some K–12 expenses and college tuition.

Education Savings Accounts: 529 Plans and Coverdell ESAs

Both 529 plans and Coverdell ESAs are designed to help families save for education. In bankruptcy, parts of these accounts may be protected, but not always fully.

• 529 Plans: If you made contributions to a 529 account more than two years before filing, that money is usually fully protected, as long as the account was set up for a qualified beneficiary like your child, stepchild, or grandchild.

  • Contributions made between one and two years before filing are only protected up to $5,000. Contributions made within one year of filing aren’t protected at all.

• Coverdell ESAs: These accounts work much like 529 plans and are treated the same under bankruptcy law. They can be used for K–12 and college expenses. Just like with 529s, the timing of your contributions matters when it comes to whether the funds are protected.

Can Bankruptcy Affect My Child’s Ability To Get Student Loans or Financial Aid?

Filing bankruptcy doesn’t prevent your child from getting federal student loans or financial aid. The law protects access to most federal programs — including Stafford Loans, Perkins Loans, and Pell Grants — even if the applicant or their parent has filed bankruptcy.

That said, there’s one exception: PLUS Loans (which are credit-based) may be denied if the person applying has received a Chapter 7 discharge in the last five years. This applies to both Parent PLUS loans and Graduate PLUS loans. A Chapter 13 discharge, on the other hand, usually doesn’t affect eligibility.

Even if a PLUS Loan is denied because of bankruptcy, your child may still be able to get the loan by applying with a creditworthy co-signer.

The good news is that most federal student aid, especially need-based programs like Pell Grants and Stafford Loans, doesn’t look at credit history at all. So bankruptcy generally won’t get in the way of your child getting the financial help they need to attend college.

How Does Bankruptcy Affect Child Support?

Filing bankruptcy doesn’t erase child support obligations, but it can still play an important role if you're behind on payments or waiting on support owed to you. Whether you’re the one paying or receiving child support, here’s what to know.

If You Owe Child Support

Child support is considered a priority debt, which means it can’t be discharged (erased) in bankruptcy. This is true no matter which chapter you file. But if you're behind on payments, Chapter 13 bankruptcy can help you catch up in a more manageable way.

When you file, something called the automatic stay goes into effect. This usually stops most collection actions, like wage garnishments. However, child support is treated differently. Some actions — like modifying a child support order, collecting from non-bankruptcy assets, or enforcing wage withholdings — might still continue, depending on the situation.

Even with those exceptions, many parents find that filing Chapter 13 gives them breathing room. Past-due child support can be included in your repayment plan and paid off over time. Just keep in mind: You must stay current on new child support payments during your bankruptcy. If you're behind on payments that come due after filing, you won’t be able to complete your case or receive a discharge of your other debts.

If You’re Owed Child Support

If someone who owes you child support files bankruptcy, they’re still responsible for making those payments. Child support can't be discharged, and you’ll remain a priority creditor in their case.

If they file Chapter 13, the amount they owe you in back child support must be included in their repayment plan. Once the court approves that plan, you should start receiving payments from the bankruptcy trustee to catch up on what you're owed. These payments are separate from any ongoing, regular support, which they must continue to pay.

If they file Chapter 7, their child support debt stays in place, and wiping out their other debts might make it easier for them to stay current on support moving forward.

Let's Summarize...

Filing bankruptcy might feel overwhelming at first, especially when you're thinking about how it could affect your children. But in most cases, the impact on your kids is minimal and the long-term benefits can be life-changing. Getting relief from debt can reduce stress at home, free up money for essentials, and help you create a more stable future for your family. For many parents, the peace of mind that comes with a fresh start makes a big difference for everyone in the household, especially the kids.