When you file for bankruptcy, you may be worried about bank accounts belonging to your minor children. For children under 18, most financial institutions require a parent or guardian to be an additional account holder, so does this mean that your Chapter 7 trustee could seize it and distribute the money to creditors?

The answer to this question depends on multiple factors. Your name is on your child’s account, so you can be considered one of the asset owners. If it isn’t covered by an exemption, then the outcome will depend on the type of account, its purpose, and other mitigating factors.

What type of account is it?

If it is a basic checking or savings account, then it has to be included in your list of assets and, hopefully, covered by an exemption. On the other hand, if it is a Uniform Transfer to Minors Act trust account and you are only the custodian, then it should be protected due to its irrevocable nature. The only exception to this rule would be if your trustee determined that you transferred money from your account to your child’s trust account to prevent it from being seized, your trustee could undo the transfer as a fraudulent transaction and claim the funds.

With 529 college savings plans, the money is not fully protected from creditors until two years after you contribute it. If you add money less than a year before you file, then your trustee can claim it, and funds contributed after one year but before two years will only have partial protection. Your New York bankruptcy attorney can help you confirm.

To avoid stressful and unnecessary litigation, take the following steps:

  • Disclose your child’s account to your trustee. When you’re compiling your bankruptcy paperwork, disclose the account, and explain your involvement with it (account holder vs. custodian). Failure to disclose it will only lead to problems if your trustee discovers it later.
  • If it is protected, then provide proof. With a 529 college savings plan, you will have to prove that certain contributions are over two years old if you want to protect them.
  • Try to exempt any unprotected balance. Both New York state and federal exemptions let you exempt a certain amount of personal property. You can use an available exemption to protect the account, but be sure to explain that the money technically belongs to your child, and you are exempting it as a precaution.

As you can see, assets belonging to your minor child can raise some difficult questions in a Chapter 7 filing. Your bankruptcy attorney will help you take the approach that is best suited for the account type and your situation. Jayson Lutzky is Bronx bankruptcy lawyer admitted in the Southern and Eastern Districts of New York. He has over 36 years of legal experience and has helped many highly satisfied clients. He offers free initial consultations and can be reached at 718-329-9500.