If your parents are still connected to your financial life or simply involved in your well being, there may come a time when you will need to talk to your parents about bankruptcy. Needless to say, this can get very awkward. Here are a few tips to help you prepare for that financial talk and learn to not dread it.

Talk with Your Parents Earlier Rather Than Later About Bankruptcy

Don’t wait to talk with your parents. Yes, admitting financial problems can be embarrassing and of course you don’t want to start a dreaded family argument, but generally don’t wait until you are in the middle of the bankruptcy (when you’ll have enough to deal with). Talk to them early on, and come into the conversation understanding your choices and the decisions that you have made. Explain what type of bankruptcy you have chosen, whether there will be any effect on your parents, and what your parents can expect in the future regarding your financial circumstances. If it’s going to affect family plans, it’s far better to mention it sooner rather than later.

Explain Your Bankruptcy Plan to Your Parents

It is up to you how much you will explain to your parents. Possibly they don’t need to know the details – potentially, you may want to give them information on what’s happening and ask for advice. However, your relationship aside, accept that you may have to explain the basics of the bankruptcy plan. Be ready to give an overview of what a Chapter 7 or a Chapter 13 will mean for you, and what your financial requirements will be in the coming years. You don’t want your parents getting any wrong ideas about your situation, and this is a great way to head off assumptions.

Debts You Can’t Discharge in Bankruptcy

A bankruptcy does not immediately wipe away all debts – there are some debts, especially those associated with the government, that cannot be discharged. Some of these debts may involve your parents or at least be of particular concern to your parents. This includes child support, alimony and student loans, among other types of debt. If you have these debts you will still have to pay them, and it may be a good idea to let your parents know that, too.

Needing Help vs. Wanting Help

Can your parents help out with your bankruptcy? That’s up to you, but it’s often a decision based on wants and needs. If you are getting kicked out of your apartment and need a place to stay, or if your car is getting seized in the bankruptcy and you need to borrow a ride – then it’s a smart idea to ask for some help from your parents if possible, while you are getting back on your feet. Otherwise, the choice is probably based on your relationship, so give this some thought.

The Big Liability Question

Will your bankruptcy affect your parents directly? This is an important question to ask before meeting with them. Generally, your bankruptcy will not affect your parents directly, and will not show up on any of their financial records – in fact, it’s usually a parent bankruptcy that may affect the kids. However, if your parents are also your creditors (if they gave you a loan), then you need to discuss that loan, if it will be discharged, and any new payment plans. Athens lawyers specializing in bankruptcy law can help you out with the details here.

Avoid Making a Common Bankruptcy Mistake

None of the information here is meant to serve as legal advice. It’s best to speak with an attorney in these circumstances. A lawyer can review the details of your situation and advise you on various matters pertaining to it.

That said, this overview can help you better understand how to avoid making mistakes that could have negative consequences for both yourself and your parents. For example, if your parents loaned you money, you might wish to let them know you plan on paying them back before you file for bankruptcy.

This is understandable. However, it’s virtually always best to avoid giving favorable treatment to one particular creditor, even if you’re related to them.

Bankruptcy laws are designed to ensure all creditors are treated as equally as possible. Essentially, when you file for bankruptcy, all your creditors become one entity in a sense. If you file for bankruptcy, the percentage of unsecured debt you need to repay a credit card company will theoretically be the same as the percentage of unsecured debt you must repay to any family member who loaned you money. Should you repay your family before filing for bankruptcy, the bankruptcy trustee could sue your family to retrieve the money and distribute it more evenly among all creditors.

You may think you’re doing your parents a favor by paying them back before filing for bankruptcy. However, you could actually be hurting them financially if you were to do this.

Don’t Offer to Transfer Property

Some people who owe money to their parents but understand that they should not repay them before filing for bankruptcy nevertheless believe they can compensate them by transferring property instead. They think this is a way to repay their parents without the risk of a mortgage trustee going after their family for the money later.

This is a mistake as well. Courts understand that those who file for bankruptcy are often inclined to pay back family members before repaying other creditors. As such, they tend to scrutinize any payments and transfers you might make to family members. If the court or bankruptcy trustee discover you transferred valuable property to a family member, they will consider this to be a payment.

Transferring Your Assets Before Bankruptcy

Some people also believe they can protect their assets by transferring them to family members before filing for bankruptcy. You might be thinking about asking your parents if they can help you protect an asset by assuming ownership of it.

This tactic will not work as you intend it to. At the very least, it’s likely the asset will still be seized. If it’s discovered that you transferred ownership of an asset to your parents before filing for bankruptcy, you may even be found guilty of committing bankruptcy fraud.

It can be frightening to think about losing a valuable asset due to bankruptcy. That said, being found guilty of a crime can be more frightening.

This highlights one of the many reasons you must strongly consider discussing your options with an attorney early on in the bankruptcy process. Bankruptcy laws are complex. It’s possible to commit bankruptcy fraud without knowing it because you didn’t understand the law. This is far less likely to happen if you work with a qualified lawyer.

When Not to Discuss Bankruptcy With Your Parents

It’s worth noting that there are scenarios when it may not be necessary to discuss your bankruptcy with your parents. Yes, you absolutely should discuss this with them if filing for bankruptcy will impact them in any way. Your lawyer can let you know whether you should tell your parents you will be filing for bankruptcy if you’re not sure whether you need to do so.

However, if you are an adult who is no longer financially connected to your parents, you may justify not telling them about these circumstances. Maybe you wish to avoid the embarrassment of letting family members know about a difficult financial situation that doesn’t involve them. Again, your attorney can help you determine the best course of action.

Don’t Accept Unfounded Advice or Assistance With Your Bankruptcy

If you do decide to tell your parents you’re filing for bankruptcy, they may naturally wish to help you in a variety of ways.

That could involve giving you advice about how to navigate this scenario. Be careful when acting on any advice your parents give. You must remember that, while their intentions may be good, their understanding of bankruptcy law may be more limited than they realize. Your parents may advise you to take certain steps in this scenario that might actually be illegal or financially unwise. As always, the ones most qualified to offer genuinely appropriate advice are legal professionals with experience handling cases like yours.

It’s also not uncommon for parents to urge their adult children not to file for bankruptcy. Knowing this, during your initial discussion with your parents, you should let them know you’ve made your final decision. Make it clear to your parents that you aren’t approaching them for advice, you’re merely letting them know about a financial circumstance that may impact them in some capacity.

Prepare Emotionally

This is a very important point that’s nevertheless easy to forget when you’re getting ready to discuss bankruptcy with your parents. For most people, filing for bankruptcy is a stressful experience. It’s easy to get excessively emotional when talking to your family about your plans to file for bankruptcy.

Losing control over your emotional state when having this important discussion with your parents can cause a number of problems. For example, if your parents react with disappointment or anger when they learn you’re filing for bankruptcy, you may get defensive, resulting in an argument that can add to your stress. Or, if you’re very emotional, you might fail to accurately explain the nature of the situation.

Prepare yourself by accepting that talking to your parents about bankruptcy will likely be uncomfortable. You can help yourself by taking control of your emotions.

Know How Bankruptcy Will Impact Your Parents in Athens, GA

Once more, the way in which filing for bankruptcy will impact your parents depends on several factors. Obviously, if your parents have loaned you money, filing for bankruptcy will affect them.

On the other hand, if your parents haven’t loaned you any money, the overall impact on their lives and finances could be relatively minimal. Regardless, they might not know this.

It can’t be stated enough: bankruptcy law can be very confusing to those without professional training. Many people believe various misconceptions about bankruptcy law.

Your parents could be such people. If you’re an adult child who is living with them when you file for bankruptcy, your parents might mistakenly believe this will potentially impact their credit score, property, debt, and more.

It’s highly unlikely that will happen. This is yet another reason you should speak with an attorney first before letting your parents know you plan on filing for bankruptcy. An attorney can provide you with accurate information, ensuring that if your parents do make incorrect assumptions, you’re prepared to correct them.

Seeing an attorney first can also make this experience easier for your parents in general. While they probably won’t be thrilled to learn you have to file for bankruptcy, they may at least be pleased to know you’re handling the situation maturely by taking all necessary steps to protect yourself. As a result, they may be less likely to complicate the situation by trying to get involved.

When Your Parents Are “Well-Meaning”

Often, well-meaning parents “help” their adult children file for bankruptcy in ways that actually interfere with the process. They may do so because they are not confident their children are able to address these circumstances on their own without making any mistakes.

How to Keep Your Control in the Situation

In the long run, this can be less-than-ideal for all involved. If you can tell your parents you’ve already hired an attorney when you first discuss bankruptcy with them, you’ll demonstrate to them that you’re approaching this situation intelligently. This reduces the odds that they’ll try to take control of your choices.

You Can File Bankruptcy If You’re Living With Your Parents

While on this topic, you should also know that you absolutely can file for bankruptcy if you still live with your parents. Usually, even if you’re living at home when you file for bankruptcy, you’ll still receive a living expenditure budget. That’s because the court doesn’t expect your parents to cover the cost of providing you with a home and food. They may choose to do so if they wish, but if you’re an adult, they do not have to.

Tough But Necessary

No, speaking with your parents about bankruptcy is not a “fun” experience. That said, it may be a necessary one if filing for bankruptcy will affect your parents in any way. The experience can also be easier than you may expect it to be if you prepare by equipping yourself with a basic understanding of bankruptcy law. You don’t want to go into this experience without preparing to accurately answer the various questions your parents might have. If you make a misstatement, the discussion could be more stressful than it needs to be.

Morgan & Morgan Can Help Talk to Your Parents About Bankruptcy

Contact Morgan & Morgan for help answering your bankruptcy questions. Good luck speaking with your parents!

 

Originally published August 5, 2015 and updated September 21, 2021.