Many Georgians have been considering filing for bankruptcy as a mechanism to help them alleviate their mounting debt that they accumulated during the economic crisis. There are many factors to think about when making the decision whether to file bankruptcy and a knowledgeable bankruptcy attorney can help you decide if doing so is right for you and your family.

One of these factors that should be considered and discussed with your attorney and your family is how filing for bankruptcy may affect your children. Georgian parents wonder if their children will lose any property, if their college savings accounts will be taken away, or if they will be able to receive student loans for colleges. These are all important and legitimate concerns that parents should address before filing bankruptcy. A small number of these issues are addressed below and our attorneys are always available to answer any other questions about these issues for Georgian parents.

What Will Happen to My Children’s Property?

What you (and your children) view as their property is likely very different than what the bankruptcy law views as their property. Bankruptcy law essentially takes the view that any property in your house is yours (i.e. the homeowner’s) including personal property used by your children such as their bedroom furniture, clothes, school supplies, toys, etc. Unless your children paid for a particular item from their own money (and you can prove that they used their own money to purchase the item), the item will be considered your property.

The bankruptcy law deals with property in different ways depending on which type of bankruptcy you file. For example, if you file a Chapter 13 bankruptcy you can keep all of your property so your children would not need to worry about losing their toys or clothes. Similarly, in Chapter 7 you are allowed to keep all of your property that is exempt from the bankruptcy. Now, what exactly qualifies as exempt property may vary from state to state but all states, including Georgia, allow you to keep at least some household furniture and clothes. However, even if your children’s furniture, clothes, and toys are more than the amount that is typically exempted, it is still highly likely that your children can keep all of these possessions as the bankruptcy trustee (the person in charge of administering the bankruptcy and selling valuable assets to pay off debts) isn’t usually interested in selling children’s items as they are not typically valuable.

What Will Happen to My Children’s College Funds?

Many college funds are organized under section 529 of the Internal Revenue Code and are called 529 accounts, 529 funds, or a similar name. These types of accounts are specifically excluded from being considered property of a bankruptcy case. Because they are excluded, the bankruptcy trustee and your creditors cannot recoup any money from these funds.

Of course, there are a few limitations for this protection that are aimed at preventing abuse of the system. For instance, the beneficiary of the 529 fund must be your child, grandchild, stepchild, or step-grandchild. You cannot create a 529 fund and name yourself the beneficiary in order to protect your money from the bankruptcy proceeding. Additionally, if you make a deposit into the 529 fund anytime during the calendar year before you file for bankruptcy, those deposited funds are not protected. If you make a deposit between one and two calendar years before filing for bankruptcy, only deposits up to $6,225 per beneficiary will be protected (but any deposit made more than two calendar years before you file for bankruptcy is completely protected).

The decision to file bankruptcy is one that can affect the entire family. By consulting with a highly skilled, experienced, and compassionate bankruptcy attorney you and your family can make an informed decision about the best way to improve your financial circumstances. Contact our office today to speak to one of our attorneys who can explain these issues to you and assist you with your case.