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Will filing for bankruptcy affect my kids?

On Behalf of | Jan 22, 2025 | Bankruptcy

Filing for bankruptcy can feel overwhelming, especially if you have children at home. As a parent, it’s natural to worry about how this decision might affect them. The good news is that bankruptcy is designed to help families rebuild their finances, and it usually has few negative impacts – and a few truly positive impacts – on a filer’s children. 

For starters, bankruptcy is a process that involves you and your creditors. It is important to understand that it will not put any financial burden on your kids. Their personal property, like toys, clothes or savings accounts in their name, will not be affected by your bankruptcy case.

What might change

While bankruptcy won’t target your kids, it could inspire some changes to your family’s lifestyle. Therefore, you – and your kids – might need to think ahead about the following things:

  1. Housing
    If you’re worried about losing your home because it is at risk of foreclosure, know that bankruptcy often helps families keep their homes.
    • Chapter 13 bankruptcy allows you to set up a repayment plan, which can help you catch up on missed mortgage payments and avoid foreclosure.
    • Chapter 7 bankruptcy might require selling certain assets (although this is really unlikely), but many states offer homestead exemptions to protect your home.

If changes to your housing are needed, reassure your kids that you will focus on finding a stable, safe environment for your family.

  1. Family Budget
    After filing for bankruptcy, you’ll need to adjust your budget. This might mean cutting back on things like eating out, vacations or extra activities. While this can feel tough at first, it’s a step toward building a stronger financial future for your family.
  2. School and Activities
    Bankruptcy will not affect your child’s ability to go to public school or qualify for financial aid for college. However, if your kids are in private school, you’ll need to review whether tuition fits into your new budget. Some bankruptcy plans allow necessary school costs to be included.

Kids are sensitive to changes, but they don’t need to know every detail of the bankruptcy process. Explain things in a simple, age-appropriate way. For example: “We’re working on a plan to fix our money problems so we can take care of everything important, like our home and family.” This can help them to feel that you’re handling the situation and will keep everyone’s focus more squarely on working toward a bright future.