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Bankruptcy and Your Kids

Finances are an important part of our lives. Therefore, when financial problems come, it is important to handle it in a way that helps you keep your family afloat without too much disruption in your daily life. One of the things that we often do not think about when financial woes come is the affect it has on your kids and family. These things should be taken into consideration so that you will be able to handle the financial struggles in the best way possible and form a plan for the future.

Definition Of Bankruptcy

Bankruptcy is a declaration to the courts and to your creditors and collection agencies that you cannot afford to pay the debt you owe. There are two types of bankruptcies the court can declare: Chapter 7 and Chapter 13. Chapter 13 usually refers to the “wage earner’s plan,” which the courts work out to find a way to pay portions of your bills while you are stretching through. Chapter 7 is full-blown bankruptcy and usually involves issuing a “cease and desist” order prohibiting collectors from contacting you. This requires the creditors and collection agencies to cease and desist bothering you, since the court has declared that you cannot afford to pay and still pay for life’s daily necessities. It is your legal protection from legal action and may save you from losing personal property or facing civil actions.

Bankruptcy As An Option

No one likes to think about bankruptcy and most people do not want to consider it as an option for their present financial problems. However, in some cases, when creditors are calling you daily and threatening legal action, when wages are threatened to be garnished and property taken away, something has to be done. The law is there to protect you and your family in such cases and for these situations, sometimes bankruptcy is your best option. It may involve forfeiting some of your property to gain equity on some of your obligations but you are usually able to keep your necessities, your car, and your house.

How Bankruptcy Affects Your Kids

The problem with financial difficulties is that it crosses over into family dynamics, and can hurt relationships if not handled right. For example, young children who do not understand the process of bankruptcy, may sense that something is wrong and feel fear or uncertainty due to the pending legal action.

How To Talk To Younger Children

Young children should be reassured that everything is under control and that life will continue as you know it, except that you are going to have to be more frugal in your daily financial lives and to work through the bankruptcy gradually. Young kids do not have a need to know everything, so do not try to explain it all to them. Just remind them that everything is okay and that the bankruptcy will not last forever.

Talking To Older Children

Older kids are more aware of things like court proceedings and some of the legal terminology, especially brighter kids. So you will want to speak to them about the bankruptcy in more adult terms, using terms like “collections proceedings” and “court judgments” to explain what is happening with a bankruptcy action. Further, ask your older child if they have any questions about how it will affect their future or their lives. Older children are pretty in the know on financial issues and may worry that the bankruptcy will keep them from going to college, prohibit them from buying anything new, or they may have concerns that the family may have property confiscated or other liens places on their possessions. Explain to them that a bankruptcy does not mean someone can some in and take their belongings, or put restrictions on purchasing habits. It only means that you are free from the obligations that you could not pay as a family and allows you to take this time to restructure your financial plan and get on with your life.

Additional Reading

In addition to talking to your teen and younger children about bankruptcy proceedings, you may want to help them research what bankruptcy is on the internet. This is a good time to also begin discussing responsible financial management with kids, who need to develop habits from an early age which will carry into their adult lives. Have them look up bankruptcy and other financial terms so that they can better understand it, then they will not be as fearful about the outcome. Remind them that the courts declare a bankruptcy in order to protect a family from further legal action, and that it does not mean that anyone is in trouble with the law.

Teaching Money Management

As a part of teaching kids about the process of bankruptcy proceedings, use this time to also teach viable money management skills. One of the main points you will want to make is that you should never spend more than you make. Tell them that in order to increase your standard of living or “buying power,” you have to either increase your income or decrease your expenditures, and that budgets are made with the intention of doing a delicate balancing act between these two extremes. Kids need to understand the reasons for doing a budget are not to restrict yourself, but to plan so that you remain in control of the financial aspects of your life.

What Is A Budget?

Budget is from a French word, (bougette), meaning, literally, “a small purse.” Further translated, it means a “plan for spending.” This gets into categorizing expenditures and this is a good habit to get into with kids when they are young, so that they will begin to think of their own finances in categories. For example, a category called “food” is too broad, but a category called “Dining out” is better because it will reflect the exact amount you are spending in a given month on eating out. This will be valuable later when you look back to see how much money you are spending in this area, so that you can cut back on it if it is too much. Likewise though, it will allow you to increase the amount you are spending in those areas which you like and which bring a certain degree of satisfaction to your life, such as recreation, clothing, or music.

A Word About Miscellaneous Spending And Bankruptcy

Some people think that, once a bankruptcy has been declared, that all of the miscellaneous spending has to be immediately stopped. This creates a sense of lack and deprivation on family members and makes them feel like everything is hopeless. Who wouldn’t feel desperate and depressed if they think that bankruptcy takes all of the joy out of life as they know it. But bankruptcy does NOT mean that you cannot enjoy life. It just means that you must use this time to revamp your spending habits and chart a better plan for spending.

True, more focus should be put on the necessities of life and overspending should be avoided at all costs (no pun intended!) Still, there is nothing wrong with budgeting for some miscellaneous items and expenses which do not fall into any other category and which add to your level of enjoyment in life. It is just important to make sure these extra expenses are planned for and not just done “on a whim,” because that is likely partly why you got into financial trouble in the first place.

Helping College Kids Cope During A Bankruptcy Proceeding

College kids have a whole unique perspective on bankruptcy and they may worry that they will not be able to finish their degree, may not be able to spend money on little things they enjoy, or that the family will not be able to help them. Explain to them, as you do with any children in or out of the home that bankruptcy is just a legal term which prohibits creditors from bothering you, and that the restriction is more on the collection agency than it is on your family. Explain that it is just a temporary fix to help you work on your bills and finances and does not mean that you cannot make choices in life, including financial ones.

Life After Bankruptcy: This Too Will Pass

Your grandmother always said, ‘This too shall pass,’ and she was right. Bankruptcy, like many unpleasant things in life, was not meant to last forever. It is only a temporary fix to help you get through the struggles of life and get creditors and collectors off your back until you can get back on your feet again. Bankruptcies stay on your credit report for a period of 7 years, so this means that, during this time, you will not be able to buy a new home, you may have problems getting new credit lines, starting a new business or investing in anything which requires a large amount of capital. However, it is does not mean that you cannot live your life normally, pay your bills (other than the credit for which the bankruptcy released this obligation), or take vacations. It simply means you have to be more careful than ever before and use this time to prioritize and think about what is important.

After the bankruptcy has been discharged, it may still show up on your credit crating as a “slow pay” for a while, as you slowly build back your credit rating. But, with time, credit agencies and other institutions will start to trust you again and you will be able to get things back to the way they were before (minus the delinquent debts, hopefully).

A Word To The Wise

To the recovering bankruptcy family, the best advice you can receive is to learn from your mistakes. Think about and analyze what made you have to declare bankruptcy to begin with and swear to never let yourself get into this situation again. Break down the factors that got you to that point. Was it overspending on little things? Medical bills that piled up? Unexpected car repairs? Too many credit cards? It is important to remember that you cannot solve a problem if you do not know the factors that got you there in the first place. So really scrutinize the factors and work on avoiding these your next time out.

When To Seek Legal Advice

Remember, finally, that the strong person knows when to seek help. It is when we are most challenged that we need each other the most. And, when things get bad, and creditors call daily, leave messages at your workplace, threatening legal action, or when your wages have been garnished, it’s time to take action. Bankruptcy is not the only option to freeing yourself from financial obligations that you cannot meet, but it is sometimes the best recourse when there is no escape.

Summary

Financial difficulties steal from the heart and soul of your family and put unneeded stress and strain on family members and children. The trauma can affect younger children more than older kids, who already understand what is going on with these situations. Nevertheless, all children should be talked to regarding your financial challenges, so that they will realize it is under control. More education about what bankruptcy is, coupled with a real teachable moment about how to responsibly handle their own finances in the future, will go a long way toward helping them to learn from the experience of a bankruptcy proceeding. With time, the bankruptcy will pass and you will get back on your feet again, and you will learn from the experience, vowing never to let it happen again.

It’s Okay To Ask For Help

So, if you need advice on your financial situation in Baton Rouge or New Orleans, and think bankruptcy is an option that you’d like to consider, contact us. We have been dealing with bankruptcies for many years and we know how to advise you regarding your financial and legal concerns. Do not wait another day to get back your life. Your children are counting on you.

Disclaimer: The above is simply meant to offer some suggestions in how to handle bankruptcy in your family when dealing with children and how it affects them. It is not meant to serve as legal advice. If you need legal advice, consult the Grand Law Firm or an attorney of your choice.

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