What happens when you personally file for bankruptcy and have bank accounts or other assets in your children’s names? When your children are under age or not yet 18 years old, most financial institutions require you as the parent or custodian to be listed as an account holder, too. So is this money that you have set aside for your children’s future in danger of being taken away by the Trustee in Bankruptcy? Unfortunately, the answer is “it depends”. With your name on the account you could be considered as half owner of the asset. The real question is, does it fall within your personal property exemptions of $7,500.00? It will depend on the total of all your other assets and thus a complete assessment of your entire financial picture will need to be taken. Ultimately, it will depend on the type of account your child has, the purpose the account was opened, along with a plethora of other mitigating factors.
The Type of Bank Account Matters
Is the account a simple checking or savings account? Then it will need to be included in your Bankruptcy and an assessment of your financial picture will determine if it falls within your exemptions.
Uniform Transfer to Minors Act
Is it a Uniform Transfer to Minors Act (UTMA) trust account with you as parent only acting as a custodian? If so, due to the irrevocable nature of the asset, it should be completely protected. It is not considered an asset of yours so it is not even listed in your bankruptcy petition. There are some exceptions. If it is determined that the reason you transferred the funds from your account to the UTMA account was to deprive your creditors of those funds, then the transfers could be voided as a fraudulent transaction and brought back into your bankruptcy estate.
529 College Savings Plan
Is it a 529 college savings plan or prepaid plan? If so, full protection from your creditors does not occur until 2 years after the contribution to the plan is made. If the contribution was made less than a year from your Bankruptcy filing, then none of the funds are protected from your creditors. Funds contributed between the 1 year and 2 year mark are only partially protected. As you can see this can get very complicated. You will want to discuss these time frames with your bankruptcy attorney and you will want them to know the answers to these questions. The exceptions can get very convoluted.
Many other questions need to be asked by your Bankruptcy attorney, such as, “Did your child work and put all the money in the account or a substantial portion of the money in the account?”, “Were they given the money as gifts by grandparents or other relatives for Christmas or Birthday presents?” or “Did they inherit the money?”. All of these questions and many more will need to be asked by your bankruptcy lawyer so it is very important to select the best one available or these questions may never get asked or answered. At Bond and Botes we have experienced attorneys that have filed 1000’s of Bankruptcies and will do everything possible to protect not only your children’s property, but yours as well. Don’t just look in the phone book and select the cheapest bankruptcy attorney you can find because as the old saying goes, “You get what you pay for”. By saving a couple of hundred dollars on a cheap attorney it may cause you and your loved ones to lose thousands of dollars in the long run.
If you have questions regarding any aspect of Bankruptcy in Alabama, Tennessee or Mississippi, please call one of our Bond & Botes affiliated offices. We offer free initial consultations so feel free to call one of our conveniently located offices to set up a private consultation with one of our experienced attorneys.
Grant McNutt is a Managing Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Science from the University of Alabama, and a Juris Doctorate from the Birmingham School of Law. He has been practicing Consumer Bankruptcy Law since 1999. Read his full bio here.