Can My Parent’s Bankruptcy Affect Me? Here’s What Financial Experts Say
Written by
Angela Mae
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Rebekah Evans
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According to the latest data from the U.S. Courts, the total number of personal bankruptcy filings increased by about 16% from 2023 to 2024. During this period, there were 434,064 total filings compared to the 374,240 filings the year before.
Filing for bankruptcy is sometimes seen as a last resort, one that can wreak havoc on the filer’s finances and credit. But how does your parent’s bankruptcy affect you? Here’s what the experts say.
It Can Impact Your Inheritance
You can’t talk about bankruptcy without mentioning the potential financial losses involved. If your parents file and lose their home, it could impact their legacy — and your future inheritance.
“In some cases, the trustee may require the sale of your home if your equity exceeds the exemption limit for your type of bankruptcy,” said Lewis Landerholm, founding attorney at Pacific Cascade Legal.
For those in their parents’ will who anticipate an inheritance, this can impact their own long-term financial planning.
There’s Also an Emotional Impact
Finances and damaged credit aren’t the only areas bankruptcy can affect. For children who are still living at home, it can also be an emotionally stressful time.
“Losing a childhood home can be distressing for children, especially if it means relocating to a different school district or leaving behind close friends and familiar surroundings,” Landerholm said.
It Can Alleviate Financial Strain
According to the Board of Governors of the Federal Reserve System, 36% of parents with kids at home are financially stressed. While it might not seem like it at first, filing for bankruptcy can have a positive financial impact after the initial stress is over.
“Bankruptcy often helps relieve financial stress, which I think kids feel. While most of the time parents are not talking about the financial struggles they are facing with their kids, unless the kids are older, the kids can tell when parents are worried and stressed,” said Ashley Morgan, attorney and owner of Ashley F Morgan Law, PC.
Filing can be taxing — emotionally and otherwise — but it can relieve a of of financial stress for the whole family. Even if you’re fully grown, there’s often an element of relief involved knowing your parents aren’t struggling as much.
Bankruptcy Can Free Up Money for the Future
Similarly, parents who file for bankruptcy can help out their children — even those who don’t still live at home. How?
“If a debtor files bankruptcy and no longer has to pay debts, they can worry about saving an emergency fund, retirement account or even college fund,” Morgan said. “For parents, a lot of times the concerns are about having money to feed their kids and also get their kids what they need. By getting rid of debt payments, typically there is money that is opened on a monthly basis and it is easier to budget going forward.”
When finances are freer, it also has that added emotional benefit. So, if you’re concerned about your parents’ well-being, know that filing might sometimes be their best option.
“There is the stigma that can come with bankruptcy, but that seems to be reducing over the years. After the last financial crisis, I think people started understanding that life happens and sometimes you need help,” Morgan said. “I have had many clients who say they feel better immediately after filing they feel better and sleep better.”
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