Bankruptcy is often the best choice for debtors in Columbia and surrounding areas who cannot make payments on their debts. When you miss payments or you are covering only the interest on your debts, continuing to send money to creditors is simply a waste. Filing bankruptcy can provide relief, but you may be concerned about the impact of a bankruptcy filing on important assets- like a college fund you have set up for your children or a college fund that you have contributed to for others who you care about.
Can You Keep a College Fund Through Bankruptcy?
When you file for Chapter 13 bankruptcy, you can keep all of your assets- including a college fund. You are not required to turn over any money or property in a Chapter 13 bankruptcy since you instead enter a repayment plan and make payments to your creditors over a period of several years.
If you file for Chapter 7 bankruptcy, on the other hand, some of your non-exempt assets do need to be turned over to the bankruptcy estate. The trustee can liquidate accounts and assets to generate funds to provide some repayment to creditors. There is no payment plan required, and debts that are eligible are going to be discharged, usually within around four to six months of the bankruptcy filing.
It is important to realize only non-exempt assets must be turned over. This means you should be able to keep a college fund you have created in most circumstances. As Credit.com explains, a college fund should almost always be protected, although the type of account the money is kept in can be a factor as well as when you actually deposited the money.
People who create a college fund typically use a special 529 account. Parents, grandparents, and stepparents are among the close family relatives who can put money into a 529 account, which will be drawn from when a child attends college. Money in a 529 account should generally be considered exempt under a bankruptcy filing.
If you are filing for bankruptcy and the 529 account was intended to provide for you to go to college, rather than being simply an account you contributed to, you should also be able to keep the account and save it to pay college tuition instead of having to liquidate it and use the funds for the repayment of creditors as a part of the bankruptcy process.
While this news is good because it means you don't put college accounts at risk when you seek debt relief, there are some limited situations where you could end up having to take money out of college accounts. This generally occurs when you have transferred money into a college account very soon before you file for bankruptcy. In other words, you can't simply take cash from other accounts you have and move it into a 529 account just to avoid having to use the cash for the repayment of creditors.