Stigmatization and labeling in society is one of the challenges that families of institutionalized children face. This research aims to investigate how professionals categorize the children and their families, and how, in turn, the categorization process impacts their daily practice and the relationship with families. The case study was conducted in a local children’s institution in Aalborg, Denmark, following an ethnographic approach that included day-time participant observations, semi-structured interviews with a pedagogue and a family therapist, and a “discovery” exercise with pedagogues. The data were analyzed using the two main concepts of categorization and stigmatization. The results show how professionals categorized parents as “resourceful” and “non-resourceful,” causing barriers in their work with the families. Categorization based on “resourceful parent” is a co-constitutive process influenced by the interactions between the Danish system (macro level), the institutional field in which public and private actors operate (meso level), and the everyday interventions of practitioners (micro level). Overall, the process of categorization and labeling shapes the collaboration between professionals and parents, which leads to an overemphasis of particular family traits, with a direct link to the “myth of meritocracy.”