Should We Tell the Kids About Our Bankruptcy?

When, How, and If You Should Tell the Kids

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You stop answering the telephone. You get a funny look on your face when you take in the mail. More often than not, you say “no” at the grocery store. You don’t put as much in the collection plate at church on Sunday morning. Maybe things are not going well financially, so you start to question whether your financial future is going down the tubes. Christmas and birthday parties aren’t looking very festive anymore.

Maybe you’re even wondering if you’ll be able to continue putting meals on the table.

Think your kids don’t notice? I'll bet they can feel your pain, even if they don’t understand what causes it.

As parents, it’s our job to protect our children. We work to keep them out of harm’s way. We shield them from predators, try control what they eat, help them with their homework, and keep their screen time in check. Above all, we want them to feel safe, and we want to believe that we will always be able to provide for them, maybe even better than our parents did for us. But when we lose a job, have serious medical issues, divorce or business reversals, sometimes providing for the family can be difficult. Handling the emotional repercussions can be devastating.

Discussing Family Finances Can Cause Discomfort

Do we even have to say that it’s uncomfortable to address financial issues with your kids? While some parents have little difficulty discussing family finances with their children — at least the older ones — many find the idea of laying the cards and their bank books on the table almost unimaginable.

It’s difficult enough for adult partners to discuss these issues. Many parents subscribe to the belief that their income or the state of their debt just isn’t their children's business, and the idea of talking about money stresses can be downright paralyzing. 

Some Benefits of Talking Money With the Family

As reluctant as you might be to address the distress of money issues with your children, consider the many benefits of being as honest as their age and maturity level will allow.

  • Being straight with the kids will go a long way to quell their anxiety about the state of your family finances. If you hide the facts from them, they will almost always think the worst, just like adults do.

  • They will learn that hiding from your difficulties will not make the situation better or make it go away.

  • Knowing what’s going on can help them feel like they're part of the solution. When your kids are on board, they may be more cooperative. They might even be able to help. Give them a role in seeing that the family finances are held in check.

  • Addressing your concerns with the kids will give you an opportunity to assure them that they are not the problem.

  • Sharing information about your finances will teach them to deal with the present, then move on. Don’t hold onto past hurts, shortcomings or failures.

  • They will learn to handle adversity without falling to pieces.

  • You can instill new values in them by showing how you would handle situations if they came up again: “If I had it to do over again, I probably would not buy that giant TV,” or, “Next time I’ll buy a used car instead of a new one.”

How Much Information to Disclose

Whether and how much you disclose to your kids depends a lot on your own comfort level and the age and comfort level of your children.

First, know that your children pick up on a lot of issues in the family because they can sense subtle changes in routine and stress levels. Maybe you think they won’t notice that you’re not going to the movies, that you didn’t take a vacation last year, or that they didn’t get that special gift for their last birthday. If you try to hide your troubles, I can guarantee you that the kids will know something is up.

If your partner started doing the same thing, wouldn't you be concerned? I think so. Would you feel that something was wrong? I'll bet you would. Would it stress you if you didn’t understand why your partner’s behavior changed? Might you start imagining a host of worst-case scenarios? Most people do. Well, imagine how that might be magnified in the eyes of children when they experience the increased stress level of the adults in the family — their protectors, their guardian angels, their omniscient benefactors.

Here are some suggestions you can use to prepare for a conversation with your children about the financial issues that will affect them.

Kids Want to Feel Safe 

Regardless of how much you ultimately disclose, kids really just want to feel safe, financially and otherwise. Your attitude will go a long way toward instilling confidence and a sense of security. If you’re worried, they’ll worry. If you show that you’ve got things under control, they'll feel good about that, too. Don't exaggerate your situation or raise an alarm that isn't warranted.

Know Where You Stand Financially 

Knowing where the money is going and what your financial picture will look like after the bankruptcy case is filed might put your mind more at rest even as you’re explaining it all to the kids.

Another factor that can play into the decision of what to disclose is the type of bankruptcy you've filed. A Chapter 7 case or "straight bankruptcy" usually lasts four to six months. In the vast majority of cases, the debtor won't have to give up any assets. Chapter 13 is a much longer process. A Chapter 13 plan will last three to five years. It requires that you keep to a strict budget. No more plastic-money-buy-now-pay-later attitudes. You can’t take on additional debt without court permission. It has much more potential to affect the day-to-day lives of the kids.

It would be entirely possible to file a Chapter 7 case and never tell the kids. Navigating through a Chapter 13 without the kids knowing will be harder.

Explore Your Attitudes Toward Family Money 

Before you call that family meeting to discuss your bankruptcy case, you might want to think about how you have to handle money issues otherwise, how old your kids are and how they react to stress. How would you answer these questions?

  • Did your parents talk to you about their finances?

  • Do you feel comfortable talking with your partner about money issues, or do you fight about money?

  • Do you talk with your children about “ordinary” financial info like family income, the amount of the mortgage payment or whether you're putting money into an education IRA?

  • How do you usually feel discussing finances with your children?

  • Do the kids consider money discussions to be routine?

  • Do the children seem stressed when you talk about routine money issues?

  • Do the kids space out or act like they don’t care?

  • Do the kids ask on their own about family money?  

  • Do you give the kids an allowance?

  • Do the kids handle their money responsibly?

  • Would you say your children are especially materialistic?

Don't Fight About Money Issues in Front of the Kids 

If your relationship with your partner is strained, that will only make things worse for the kids. Do not pit one parent against the other. When your son asks for new name-brand sneakers, how will it improve your family situation if you say, “Go ask your father.” Now is the time for a united front.

Call a Family Meeting 

All adults should attend, as should all children old enough to spell the word “bankruptcy.” No TV blaring in the background. No phones or other electronics. This will help the kids get it that this is serious family business.

  • Explain what the kids can expect in the near future, including the bankruptcy process if they seem capable of understanding it. Outline family austerity measures.

  • Explain that you need to stick to a budget.

  • Encourage the kids to work out a budget for the things they might need in the next few months. Assure them that you'll still celebrate birthdays and holidays. Maybe give them a taste of what they can expect there, too.

  • Ask the kids for suggestions for cutting family expenses or increasing income.

  • Give them a chance to ask questions. Not only will this give you a wonderful teaching moment, but you'll also be able to determine better how they're emotionally reacting.

Be mindful of providing more information than the kids can realistically assimilate. It's time to table the discussion when they start getting glassy-eyed or fidgety.