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How does bankruptcy affect your children?

Bankruptcy can be an intimidating process when you do not know what to expect. You worry about your current and future financial security, you worry about losing property, you worry about how you are going to rebuild your credit, and you may even wonder how it will affect your children.

The good news is that all these worries can go away with proper planning with an experienced attorney. You can get through the proceedings and start rebuilding credit, retaining most assets and preparing for any consequences for your children.

Young children

For youngsters, the hardest part may be living within a strict budget. It may take them time to adjust to the new, temporary lifestyle. Older children may ask the reasons for the change. This can be a great opportunity to teach them the basics of finances.

If you have bank accounts in your children's names, they should be safe if you have not used them for personal finances.


Teenagers have a better understanding of the situation and may experience some shame, especially if you do lose assets. Keep your attitude optimistic as an example to follow. Enlist your teens in family financial planning, or invite them to contribute through traditional employment, odd jobs or an innovative way, such as an online shop.

Vehicles in your children's name should not be an issue if the transfer occurred more than two years before you file. Otherwise, it can look like suspicious activity to protect property.

College students

Although bankruptcy affects financial aid eligibility, the impact is not far reaching to be fair for children, who have no control over their parents' financial history. Federal aid is the most forgiving, with limitations only on certain loans and increased eligibility in others. Private loans may be more restrictive, but only if you (not your child) pursue the loan, or if you are co-signing on your child's loan.

Adult children

Bankruptcy may require you to modify your estate plans if you lose assets. Otherwise, bankruptcy should have little effect on adult children unless you financially support them.

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