Filing for bankruptcy is often a tough decision to make. However, with rising debts and difficulties making important payments, it may be the best chance an individual has at getting their financial feet back under them. But what happens to the funds of those you love, especially those of your children? Are they safe? Is your child’s college savings account protected in bankruptcy?
529 Plan Accounts
In many states, including Florida, parents and others are encouraged to open savings accounts to help pay for their children’s higher education. These tax-advantageous accounts are commonly referred to a 529 plan accounts. These plans are named 529 after the section of the IRS tax code where they are outlined. These prepaid and savings plans offer a range of investment and financial breaks for those who deposit into them. But what happens during bankruptcies?
Are College Savings Accounts Protected in Bankruptcy?
When filing for bankruptcy, many people are concerned about how bankruptcy may affect their children’s savings plans – and for good reason. After all, why should the children be forced to suffer for financial issues related to their parents?
Fortunately, in bankruptcies, college saving accounts are generally protected in the event of a parent filing for bankruptcy. While these accounts are usually safe, however, there are strict rules for 529 accounts which must be adhered to. These include:
- Any monies added to a 529 savings plan account in the two years prior to bankruptcy are fully protected from seizure by the creditors.
- If the debtor has been depositing funds into a 529 account over the course of one or more years, but files for bankruptcy two years later, the funds in the 529 are partially protected from the creditors. The first $5,000 deposited into the 529 accounts are protected in bankruptcy, but the remaining funds become subject to seizure by creditors.
- If a person attempts to immediately deposit funds into a 529 account prior to filing for bankruptcy protection, this action will likely be deemed an illegal transfer of assets and the bankruptcy trustee may demand the individual hand over that money to the court.
Speak with an Expert Bankruptcy Attorney Today
Because of the often-confusing nature of what is – and isn’t – protected during a bankruptcy, it is essential that you speak with an experienced and knowledgeable Florida bankruptcy attorney before you file. This is even more important should your child’s college savings be on the line.
At the Offices of Patrick L. Cordero, we’re proud to be the largest bankruptcy law firm Florida. We offer personalized attention to every client and understand that each situation is unique. If you’re considering bankruptcy, having an experienced attorney on your side is crucial.
Trust the Lawyer of the Decade, the Minority Lawyer of the Year, and the Largest Bankruptcy Firm in Florida, and we’ll work to get you the best possible financial outcome. Trust in the experienced and dedicated legal team at The Law Offices of Patrick L. Cordero to help you. Call for a free, no-risk consultation today at (305) 445-4855.