Parents are often forced to weigh out the costs and benefits of bankruptcy versus financial bailout for their adult child. Unfortunately, most schools do not provide classes that teach practical life skills, like financial literacy and managing money. The result is that a lot of young adults are left learning the hard way about needs versus wants, and how to make a budget work. Adult kids who get in financial trouble naturally come crawling to their parents for advice and help on what to do when the stresses of overwhelming debt get to be too much. Some parents provide a bailout the first time or two, but eventually, parents will find their way to a bankruptcy attorney to see if their adult child should file bankruptcy rather than tapping into retirement or savings for another bailout.
Will she/he lose her/his credit cards? What about Credit?
Yes. Bankruptcy means that access to credit will be temporarily non-existent. During bankruptcy preparation, your child will prepare a budget based on his or her income and expenses as they exist in reality without the weight of credit cards to show areas of improvement and possible savings. This essential part of the bankruptcy process is preparation for a life without regular dependence on the use of credit cards. Think of this as a basic of budgeting exercise that aspires to break the cycle created by a broken budget.
Depending on the age of your child, credit may not be immediately needed for your adult child to move on with life after the resolution of his or her debt issues. As previously stated, access to credit sometimes is the reason for the reoccurring problem since failure to budget or understand true needs versus wants may cause debt to accumulate. Many times, an adult child’s debt issues center around a medical issue or job loss which is not a function of irresponsible use of credit. However, the fresh start that bankruptcy provides is worth the temporary sacrifice of access to credit. Additionally, the cost of the bankruptcy may the most economical road to a financial fresh start.
Credit is repaired over time and will recover. Filing bankruptcy does not mean that your child will never be able to buy a home or a car. A bankruptcy will only have to be disclosed in very limited circumstances for employment and is fair better than a disclosure than overwhelming debt.
What about Student Loans?
Federal student loan programs do not consider creditworthiness in determining eligibility, so the bankruptcy will not negatively affect your child’s ability to get federal student loan assistance.
Protect your Savings and Retirement
It is tough to be making decisions about your child’s financial future, but remember it is his or her future to control. Remember, what you are told every time you board a plane and the attendant is giving the instructions for the flight, “put your oxygen mask on first, before helping others.” Your adult child has more working years in front of him or her to recover from bankruptcy and replenish savings. I have seen parents go into foreclosure and deplete retirement accounts to bailout children from failed business ventures or accumulation of credit card debt. It is important to consider the long-term effects to your financial future when considering how best to assist your child with his or her debt issues. In many cases, the investment in proving an opportunity for an adult child to gain a fresh start from bankruptcy is a better option to throwing good money from your savings after bad investments or budgeting.
