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Will the Bankruptcy Court Take My Children’s Property?

November 8, 2010

The bankruptcy law requires the debtor to list all of his or her assets in paperwork filed with the court.  The court requires the debtor to file a standardized form called “Schedule B” which lists all of the debtor’s property.  The instructions for completing Schedule B direct the debtor to “list all personal property of the debtor of whatever kind.”


A common question from bankruptcy debtors is, “Do I have to list property that belongs to my child?”  The answer is, “It depends.”  If the child is a minor, you likely own any property that you purchased for the child, like bedroom furniture, clothing, toys, etc, even if you gave the property as a gift.  On the other hand, if a minor child paid for an item from his or her own funds, then you would identify your relationship to the property on Schedule B.  For instance, if your 17 year old son worked a summer job to purchase a car with is own money, your disclosure would identify the car and state that it is being held for a minor child.  The court cannot take what is not yours.


Property that has been transferred to a minor or adult child with the intent to protect the asset from turn-over during the bankruptcy must be disclosed.  These transfers are often attacked as fraudulent and may be lost during the bankruptcy case.  The usual problem with this type of transaction is it is done without the guidance of an attorney.  State and/or federal exemptions that can protect the debtor’s assets may be compromised when the property is transferred immediately before filing bankruptcy.  The legal protections available to you may be lost by this transfer.


Money held in trust for your child is generally not property of the estate.  For instance, a bank account set up under the Uniform Transfers to Minors Act (UTMA) naming you as custodian is usually protected.  This type of account is irrevocable and the money belongs to your child, not to you.  However, funds you contribute to this account during a time when you are insolvent may be found to be fraudulent transfers and the Chapter 7 trustee could obtain the funds to pay your creditors.


Protecting assets belonging to a debtor’s child is usually not an area of large concern.  If you have an unusual situation and your child has an ownership interest in a valuable asset, it is important to discuss the best means to protect the asset with an experienced bankruptcy attorney.  Don’t leave the protection of your child’s asset to chance.  Get the advice you need by calling today.

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