529 plans are a great way to save for your child’s education.   You can opt for one of two types of a 529 Plan: a prepaid tuition plan or a tax-exempt savings account for a qualified beneficiary.

So what happens when you’ve carefully put together this savings plan for beneficiary's future but then need to file for bankruptcy yourself to remedy your own financial difficulties?  When it comes to bankruptcy, the issue is whether or not the  529 Plan is protected from your creditors.

Is Your 529 Plan Safe?

Under section 541(b) of the Bankruptcy Code, assets in a 529 Plan may or may not be protected from the reach of the court.  The answer depends on when the money was deposited into the account.  Funds in a 529 Plan are excluded from the bankruptcy estate if the money was deposited more than a year before the filing. This protection is limited to $5,000 for funds added to the 529 plan between one to two years before the case is filed.  For funds deposited more than two years before the case is filed, however, there is an unlimited protection.

It Depends On The Beneficiary

In all circumstances, however, the beneficiary of the 529 plan must be your child, step-child, grandchild, or step-grandchild. You can’t get any protection for funds in a plan you’ve set up for yourself or a spouse.  If you’re the beneficiary then the account is considered to be yours for the purposes of filing a bankruptcy case.  The property needs to be exempted another way – if possible – or you’ll be forced to surrender it in a Chapter 7 bankruptcy.

Plan And Protect

Depending on the situation, your 529 Plan may be safe in your case.  If not, there’s always the possibility that a Chapter 13 makes sense. Or perhaps some planning is in order to minimize the loss when you file.  Either way, it’s one more reason for us to sit down and talk before you go off and make the mistake of either filing a case without a lawyer or making a move that may jeopardize your situation.

Get Trusted, Experienced Bankruptcy Counsel Today

Applying decades of experience, Steven Taylor will assess your financial situation and hear you out on your goals. To discuss your immediate concerns and long-term financial challenges, request a free telephone consultation with Steven Taylor today.  He can help you find the best solution and take decisive action to regain your financial foothold.

Steven P. Taylor, P.C. | Indianapolis Chapter 13 Bankruptcy Lawyer

Contact the law firm of Steven P. Taylor, P.C. today at (317) 271-1111 at his Indianapolis office or (765) 868-0807 at his Kokomo office for a consultation about whether you should file for Chapter 13 bankruptcy or Chapter 7 bankruptcy  in Indiana or email us your questions.  

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