When you share a bank account with your child, filing for bankruptcy can raise an important question: Could money saved for your child become part of your bankruptcy case? The answer may depend on who owns the funds, how you titled the account and where the money came from. In California, these details can matter when a bankruptcy trustee reviews your assets.
Is the money in the account yours?
Having your name on a joint account does not always mean every dollar belongs to you. However, your legal access to the funds can matter in bankruptcy.
For example, a parent in Escondido may share a checking account with a teenager to help manage school expenses. If the parent regularly deposits personal income into that account, a trustee may examine whether some or all of the balance belongs to the parent.
In a Chapter 7 case, the bankruptcy estate generally includes the debtor’s property unless an exemption protects it. A Chapter 7 trustee can review assets and determine whether creditors can receive payment from nonexempt property.
What if the account belongs to your child?
The situation may differ when the money truly belongs to the child. For instance, an account established under the Uniform Transfers to Minors Act (UTMA) may hold funds for the child’s benefit rather than the parent’s personal use.
Still, the account may need careful review. The source of the money, account records and the parent’s ability to withdraw funds can help show who owns the balance. California bankruptcy courts also require financial account information to be disclosed in bankruptcy filings, with only the last four digits generally appearing in filed documents.
Several details can affect how the account is treated:
- Who deposited the money
- Who can withdraw or transfer the funds
- Whether the account is jointly owned
- Whether the funds belong to the child
- Whether a California exemption may protect the money
Keeping clear records can help show the difference between a parent’s money and funds held for a child.
Protecting the child’s money
A joint account with a child does not automatically place the child’s money at risk because of a parent’s bankruptcy. At the same time, assuming the law protects the funds without reviewing the account structure may create problems.
Getting legal assistance can help you evaluate ownership, exemptions and account records before filing. With a careful review, you may be able to identify issues involving your child’s funds before they become part of the bankruptcy case.