Motherhood & The Bankruptcy Bargain

10 Sep Motherhood & The Bankruptcy Bargain

Two different clients recently have approached bankruptcy’s means test and the good faith test in Chapter 13 like Momma Grizzlies. Their assumption was that anything they spent on their children was beyond question when it came to qualifying for bankruptcy.

One single mother assumed that she was entitled to deduct from the means test her child’s college expenses over the life of her Chapter 13 case, thereby reducing her obligation to the unsecured creditors listed in her bankruptcy. Her daughter’s elite high school education would be “wasted” if mother couldn’t pay for college, she claimed.

The other mother had grammar school aged children and assumed that, in Chapter 7, her expenditures on after school activities and enrichment were “above the line” deductions in calculating what she was obligated to pay unsecured creditors. “But these are for my kids,” she insisted.

My unpleasant task was to point out that, while doing the best for one’s children was a virtue, it was not a given that under bankruptcy law one could provide everything you wanted to provide for your kids before considering what obligation one had to creditors.

What was needed in each situation was some balance. Bankruptcy represents a priceless opportunity to escape the financial consequences of bad luck or bad decisions. I was bothered that neither of these mothers stopped to consider how their “me and mine first” approach to budgets looked in the big picture. Having availed themselves of bankruptcy protection, they were insensitive that enriching their children’s lives came at a cost to their creditors. As Rachael Foley reminded us, pigs get fat and hogs get slaughtered.

When Congress codified the means test formula for establishing just how much debtors had to repay creditors, they allowed less than a $150 a month per child for school expenses and cautioned that debtors had to be prepared to prove that they spent that amount on school. There was no mention of after school activities or sports. You have to wonder whether these legislators have children themselves?

I have not found courts to be harsh about visiting the financial “sins” of their parents on children, but I’d rather not take the field in defense of my clients with my back to my end zone on my own 5 yard line.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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