Raising kids is tough. Having two of my own, believe me, I know. As a parent, any major (or even minor) decision that you make can have an impact on your children. A bankruptcy can generally affect an individual in two ways; financially and/or emotionally. Consequently, in general, those are the same two ways a parent’s bankruptcy can affect their child. Let’s deal with the financial impacts on your kids first.
Thankfully, the financial impacts of a bankruptcy on a child are minimal, if any at all. The biggest financial concern for a parent as it relates to their child is usually college and student loans associated with going to college. There are specific provisions in the bankruptcy laws that prohibit an individual from being discriminated against for obtaining student loans due to the filing of a bankruptcy. So, your child cannot be turned down for a student loan due to a parent’s bankruptcy. Further, the parent cannot be turned down for obtaining or co-signing student loans for their children due to a prior bankruptcy. For the most part, it’s that simple. Of course though, there are some exceptions.
Some people are in a bankruptcy longer than others. It depends on the type of bankruptcy case that was filed. Some last for five months (or shorter) and some last for five years (or longer). When a parent is in an active bankruptcy, they may have to get Bankruptcy Court permission to obtain a student loan for a child. This isn’t the student loan people turning you down; it is a requirement of the bankruptcy laws that an individual in an active bankruptcy must get Court approval to borrow any money while in an active case. We do this often at Steidl and Steinberg and is normally no problem at all.
Finally, a parent who has student loans in default may not be able to get a student loan for their child. This isn’t really a bankruptcy issue. However, many parents who file for bankruptcy do have student loans that are in default due to their financial situation.
As you can see, in terms of actual financial impact on your kids, bankruptcy really has a minimal effect if any at all. Where the real impact on your kids can rear its head is more in the emotional realm. Your financial situation affects your demeanor and your demeanor can affect your relationship with your children.
While your child’s financial situation will most likely not be impacted by your bankruptcy as a parent, your own financial situation certainly will be. That can have a trickle-down effect on the relationship you have with your child. This is not always a bad thing!
For example, many of our clients wake up in the morning, turn off the alarm, and immediately wonder how they are going to pay their bills due to massive credit card debt. They go through the day worrying about feeding their family and keeping the utilities from being shut off. Without the crushing credit card debt, they would be fine.
Dealing with Stress
As a parent, I know my stress can have a negative impact on my children. As much as I try to shield them from it, it’s impossible to do so all the time. Once the stress is relieved, my children notice a change, and I notice a change in how they react to me.
A bankruptcy can often times relieve the stress of crushing debt. After an initial consultation with my office related to debt problems, the phrase from my clients I hear most often on the way out the door is, “Now maybe I will be able to sleep tonight.” In other words, once there is some hope for relief from the debt issues, the stress relaxes. Your kids will most likely sense this relief.
On the flip side, a bankruptcy is not something anybody really wants to do. Just the mere fact that you have to file for bankruptcy can be extremely stressful. Your kids will most likely also sense it when stress and anxiety levels go up rather than down.
In this situation, my suggestion is always to be honest with your children about what’s going on. As a parent, you know that your child has an amazing intuitive sense when something is amiss or different. They may not understand what it is, but they sense “something”. Being honest with your child, may be the best way to get everyone on the same page in the household and to head off any issues.
Be Honest with Your Kids
Obviously, the honest approach will have to take on different forms based on the age of the child. Unless they are an absolute genius (and kudos to you if they are), an elementary school child will most likely not understand the concept of debt or bankruptcy. But they do understand when all of a sudden you can’t pay for things and take them to do things like you once could. A very low level conversation with your elementary school child about money and the value of money may be appropriate in that situation.
Conversely, a senior in high school “knows more about everything” than you do as a parent. A much more high level conversation about what’s going on may be appropriate in that circumstance. Explaining what bankruptcy is, why you have to do it, and how it will or won’t affect them may be the right move.
As a parent you know your child best. It is up to you to decide what to tell them, how, and when. Just know that your children feel the pressure and the stress when you do, so “head in the sand” is not the approach we recommend for a good family dynamic.
Everyone’s situation is different. If you are thinking of filing for bankruptcy and you have minor children, ask your attorney what financial impact, if any, it will have on them. As stated above, most of the time, the bigger impact is on an emotional level. Don’t hesitate to ask your attorney if they have any advice on the effect debt and bankruptcy can have on a family. Based on experience, they may have some good ideas on how to approach the issue.
As always, if you have questions about debt or bankruptcy, call Steidl and Steinberg for a free consultation with one of our attorneys. By the way, most of us have kids too.