Children’s College Education At Risk If Parents Are Bankrupt

Parents don’t realize that the credit card debts that they accumulate can hurt their children’s ability to get a college education.  People who can afford to pay their debts should not be allowed to walk away from debts because they don’t feel like paying them, but the strict rules in bankruptcy require debtors in bankruptcy to make some unexpected sacrifices.

In an article on the New York Bankruptcy Litigation Blog, Jay Fleischman writes about a common requirement in bankruptcy cases: contributing to a child’s college education is not necessary and therefore funds that parents pay to help their child must be given to their creditors.

There’s an old saying that one should not revisit the sins of the father on the son, but that’s exactly what happened here. The parents went into bankruptcy court with the intention of paying back what they could afford, and instead were told that they could not avail themselves of the system unless their daughter either dropped out of college (for $240 a month!) or sacrificed her studies by working in addition to a full schedule of classes.

Not a great way to ensure that our children are prepared for life in the working world, is it?

In bankruptcy cases, certain necessary living expenses are allowed such as paying for the debtor’s housing, utilities, food, clothing, transportation and medical expenses. Luxuries and extras are not allow.

Most parents don’t consider a modest amount to help a child get through college a luxury. Many parents feel a duty to help their children get a college education. However this may be something that can’t be done if the parents file for bankruptcy protection. Many courts disallow contributions to children (over the age of 18 and out of high school) even if the contributions are not excessive or luxurious, and the child is not yet in a position to fully support themselves or work their own way through school.

Most college students can’t work their way through school, like many people used to do. Even if they live at home and go to a local college, many students find that they need help in addition to taking out large student loans. The average cost of college at a public college for 2006-2007 is now $5,836 per year, and $12,796 with room and board. Without a good education, children often will not be able to fully support themselves and many remain at home being supported by the parents anyway.

Bankruptcy is rarely a first resort that people turn to. People usually seek bankruptcy help after many years of trying to pay their debts, often foregoing years of savings for emergencies, retirement or their children’s educations. Most of my clients have no problem giving up anything that is considered a luxury, and many come to my office looking for a way for me to help them pay off the debts that they have accumulated. People know that there is a high price for credit, but I have seen many parents break down in tears when they realize what their credit cards will cost their children.

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