Dallas based bankruptcy law firm https://www.recoverylawgroup.com/ informs that Internal Revenue Code Section 529 allows parents and grandparent to set education savings account for the future college expenses of their child (or grandchild). These accounts can only be set up in the name of the person establishing them (parent or grandparent) and the funds also belong to them. When such an individual file for bankruptcy, they need to disclose these funds as an asset in their bankruptcy petition.
Most people are worried about losing the fund when they disclose them as assets during a bankruptcy filing. However, there is no certainty to this as federal and state laws provide exemptions for such accounts. If the exemptions are applied then you can save these funds from creditors and keep it for dire financial requirements, such as bankruptcy. Different states vary in their exemption for these funds, while Federal exemptions remain constant.
It is important to be aware of the Federal exemptions regarding prepaid college funds as your Bankruptcy trustee might notice you putting a large sum of money into those funds while knowing that filing for bankruptcy might be a possibility in near future. This could be construed as hiding money from the court in order to defraud the creditors. federal exemption rules are as follows:
1. Any money placed in education saving accounts for 2 years or more prior to bankruptcy filing will be considered 100% exempted in case of the bankruptcy filing.
2. Any funds deposited in the education savings account within 1-2 years of bankruptcy filing will be exempted up to a certain amount only; i.e. any money placed above the set amount in your saving plan will be taken and distributed among your creditors.
3. All money placed in education savings account within 1 year from a bankruptcy filing is not protected and the entire amount can be taken by the Trustee and given to your creditors.
In case you are thinking of bankruptcy as a way out of your financial miseries and have established education savings account for your child, it is important that you discuss it with a bankruptcy attorney. Your timing of bankruptcy filing might be the difference in protecting the college funds or losing them. You can consult with experienced bankruptcy attorneys at 888-297-6023.