How Will Filing Bankruptcy Affect My Children?

Filing for bankruptcy generally won't take away your minor child's property, savings, or right to child support, though a few specific rules apply to bank accounts, 529 plans, private school tuition, and college loans. Here's what changes and what stays the same for your kids when you file.

Child Support Payments

Child support obligations aren't dischargeable in bankruptcy, full stop, and they get priority treatment over most other debts. Owed child support is a priority debt and is paid first from liquidated assets in a Chapter 7 case. Child support arrears get paid before other creditors in a Chapter 13 bankruptcy, too. Debts that are “in the nature of support” (think medical expenses and educational expenses) are also excluded from the bankruptcy discharge. (11 U.S.C. § 523(a)(5); 11 U.S.C. § 507(a)(1).)

You must pay child support during a Chapter 13 case. The bankruptcy court won't confirm your plan or grant a discharge unless you're current on post-filing child support payments. Read more at How Will Bankruptcy Affect My Child Support Obligations?

Your Child's Bank Accounts

Money held in trust for your child isn't property of the bankruptcy estate, so your trustee and creditors generally can't touch it. For instance, if you're the custodian of a bank account set up under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, that money isn't your money, and you can't withdraw it for yourself. Neither the bankruptcy trustee nor your creditors can get to it, because it legally belongs to your child.  (11 U.S.C. § 541.) 

Tip. Any money you transfer into a minor’s bank account before filing bankruptcy is looked upon with suspicion. If you're insolvent (meaning your debts are greater than your assets) at the time you make the transfer, the Chapter 7 trustee can usually get this money back.

529 Educational Funds

The federal bankruptcy code protects your child's 529 plan from your creditors and the bankruptcy trustee, but only within certain limits. Educational savings accounts under section 529 of the Internal Revenue Code offer significant tax advantages along with this creditor protection. (11 U.S.C. § 541(b)(6).)

Here's where the limits come in:

• The beneficiary must be your child, stepchild, grandchild, or step-grandchild. You can't set up a 529 fund for yourself, then file bankruptcy and protect the money.
• Protection depends on deposit timing. When you make the deposits is critical to whether the money is protected. Under federal law, deposits made within 365 days before your bankruptcy filing aren't protected at all. Deposits made between 365 days and 720 days before your filing are exempt up to $8,575 per beneficiary (amount valid April 1, 2025, through March 31, 2028). Any deposit made more than 720 days before filing is entirely exempt. State laws sometimes offer additional protection, so check your state's rules, too.

Private School Tuition

You can generally keep paying private school tuition during bankruptcy, though Chapter 13 caps how much of it counts toward your budget. Congress allows an educational expense of $1,875 per year per child under the bankruptcy means test, provided you document the expense and explain why it's reasonable and necessary. Whether you'll be allowed to pay more than that is up to the judge in your case. (11 U.S.C. § 707(b)(2)(A)(ii)(IV).) 

Chapter 7 bankruptcy won't stop you from paying for private school tuition.

College Education Loans

Your bankruptcy doesn't affect your child’s ability to get need-based financial aid, but it can limit your own borrowing options for their college costs. Your child can still get Pell Grants and subsidized Stafford loans.

Loans taken out by parents, though, are a different story. You're disqualified from credit-based financial aid, like the Direct PLUS Loan for parents (Parent PLUS) and the Grad PLUS Loan, if you've declared bankruptcy within the past five years, unless you can point to extenuating circumstances or line up a creditworthy endorser. The silver lining? If a parent is denied a Parent PLUS Loan, the child typically qualifies for increased unsubsidized Stafford loan limits. Stafford loans have an edge because of the in-school deferment. A PLUS Loan comes due right away.

Recent Changes

Two recent changes are worth flagging. Under the One Big Beautiful Bill Act, Grad PLUS loans are being phased out for new borrowers starting July 1, 2026, and new Parent PLUS loans taken out on or after that date are capped at $20,000 per student per year, with a $65,000 lifetime limit per child. Check the current federal rules before you assume your child's eligibility hasn't changed.

Private Student Loans and Cosigners

Cosigning doesn't protect your child if you file Chapter 7; Chapter 13 offers only a temporary shield. If you file Chapter 7, your discharge covers only your personal liability, and the lender can still come after your child for the full balance.

Chapter 13 offers more protection through the codebtor stay. As long as your Chapter 13 plan provides for repayment of the cosigned student loan, the codebtor stay stops the lender from collecting against your child for as long as your case stays open, generally three to five years. That doesn't erase the debt, though. If your case gets dismissed or your plan doesn't fully repay the loan, the lender can resume collection against your child once the case closes or the stay lifts. (11 U.S.C. § 1301.) 

Your Child's Property

Your minor child's personal belongings—clothes, toys, a bike, a laptop bought as a birthday gift—are generally safe in your bankruptcy. Once you give an item to your child as a completed gift, it legally belongs to your child, not to you, even though you paid for it. Because it isn't your property, it isn't part of your bankruptcy estate, and your trustee has no claim to it. (11 U.S.C. § 541.)

The same is true, with even less question, for items your child bought with their own money. Because minors generally can't enter into binding contracts, courts don't treat a child's purchase as creating some contractual ownership dispute—the item is simply the child's.

Tracing the gift or purchase history of a child's property to prove it isn't part of the parent's bankruptcy can be a hassle in theory. In practice, it's rarely necessary. Trustees are looking for assets worth liquidating, and used furniture, clothing, and toys aren't worth the effort unless an item has real resale value. Unless your child owns something unusually valuable (a musical instrument, jewelry, a valuable collection), a trustee typically won't ask questions.

Titled property is the exception to this general rule, and vehicles are the most common example. See below.

The Car Your Child Drives

The car your child drives is legally your property if your name is on the title, so it could be at risk unless it fits within your exemptions. Many minors drive cars titled either in their parents’ names or their own. When the parents hold title, the rule above applies. Even when the family calls it “Junior’s car,” it’s the property of the parents.

You'll need to check the exemption scheme for the state where you live to see whether the trustee might have an interest in selling your child’s car. If you're using the federal exemptions (some filers can choose between state or federal tables), a vehicle your child drives might not be exempt, because the statute allows the debtor to claim an exemption for only one car. Some states are more generous. Texas, for example, allows an exemption for any car driven by any licensed driver in the family.

If the trustee unwinds the transfer, the debtor can save the car only if it fits within an exemption. Otherwise, the trustee sells it and pays creditor claims. (11 U.S.C. § 522.)

Property ownership rules can get complicated fast. Talking with a qualified bankruptcy lawyer before you file could save you thousands of dollars and a lot of heartache.

Your Child's Income

Your child's own earnings and gifts are usually off-limits to your bankruptcy trustee and creditors. Does your child have a part-time job at a fast food restaurant or a lawn-mowing business? If your child spent that money on date nights, athletic fees, a computer, or hobby equipment, the trustee isn't likely to care. But this rule has two exceptions:

• If your child pays you rent or contributes to household expenses, you'll have to reflect the expenses and the income on the means test.
• If your child is a high-dollar earner, either through his or her own labors (say, as a social media influencer) or as the beneficiary of an annuity or similar arrangement, talk with a qualified bankruptcy attorney or CPA before you take any concrete steps toward filing.

What Parents Filing Bankruptcy Should Know

In most cases, your minor child's savings, custodial accounts, and right to child support stay protected when you file for bankruptcy, and their own income and belongings generally stay out of your case. Areas that need extra planning include private school tuition, 529 deposit timing, and any private student loans you've cosigned. Because the codebtor stay, exemption limits, and PLUS Loan rules involve real deadlines and dollar caps, talk with a qualified bankruptcy attorney before you file if any of these situations apply to your family.

For more on how the process works, check out our bankruptcy basics rundown. You can also visit Federal Student Aid to learn more about financial aid and loan options.