Filing bankruptcy can be a scary prospect. If you’ve reached the point where you feel like you might not have a better choice, then you probably have lots of questions about how the process works. What will happen to your home? How will bankruptcy affect your ability to get a job? And worst of all, what impact will it have on the rest of the members of your family?
Stephen Graves of the Graves Law Firm is a Texas-based attorney with more than 20 years of bankruptcy experience under his belt, and he understands that the notion of filing for bankruptcy can be extremely overwhelming. In fact, in many situations, the individual who is potentially filing is likely to be more worried about his family’s well-being than his own. Although it’s easy to see why this might be the case, Graves likes to reassure his clients that just because one person files for bankruptcy does not mean that the rest of his family has to get dragged through the process.
If you have a spouse with assets that are clearly in her own name (such a bank account, vehicle, or piece of property), then those assets should not come into play in the event that you end up filing for bankruptcy individually. Contrary to what some might think, your spouse does not have to declare bankruptcy just because you choose to go this route. Of course, if you and your spouse happen to have jointly-owned property, then depending on the circumstances, it might make sense for both of you to file – especially in situations where doing so might help you avoid foreclosure. However, there are no hard and fast rules when it comes to joint filings, and Graves has a policy of evaluating family scenarios on a case by case basis before advising his clients accordingly.
Just as your own bankruptcy should not affect your spouse’s assets, so too should it not impact your minor children’s assets. If your children have their own 529 college plans or trust funds, then those accounts should remain untouched even if you do end up declaring bankruptcy yourself. If you happen to be an authorized signatory (someone who is authorized to sign off) on your minor children’s accounts, then those, too, should be safe; however, joint accounts can get tricky and need to be examined on an individual basis.
When most people learn that their family members’ assets won’t be affected by their bankruptcy filings, they generally start breathing a sigh of relief. However, some people have a tendency to try to take advantage of the system by transferring some of their assets into their children’s names. Before you start getting any sneaky ideas, Graves warns that this type of strategy isn’t going to fly. Any “gifts” that you give your spouse or children prior to your bankruptcy filing will be subject to scrutiny once the process gets underway. And if the court determines that you made those payments in an underhanded fashion, then it might enforce a preference action against the recipients, thereby compelling them to return to the funds so that they can be added to the creditor disbursement pool.
Although bankruptcy might seem intimidating, you should take some comfort in the fact that you can file for it while allowing your spouse and children to walk away unscathed. Also, you should do your best not to beat yourself up over the situation, as sometimes even the best financial planning in the world won’t protect you from truly unforeseen circumstances. Remember, bankruptcy protection exists for a reason, and if you have no choice but to use it to your benefit, then think of it as a way to start over and create a better life for yourself and your family.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
