When filing Chapter 7 or Chapter 13 bankruptcy a debtor is able to protect many of his/her assets. One of the assets that enjoy some protection during bankruptcy are college savings funds such as 529 plans and Educational IRAs. When deciding whether a debtor’s contribution to these college savings funds are exempt from seizure by the bankruptcy court, the trustee will take into account when the contributions were made by the debtor.
College savings contributions which were made earlier than 720 before a bankruptcy filing are fully protected from seizure by creditors. Contributions to a college savings fund that were made 365 days to 720 days before the bankruptcy case was filed enjoy partial protection. And finally, if a debtor makes contributions to a college savings fund less than one year before they file bankruptcy, that money is not protected from seizure.
Let’s take a look at how this would play out. If you filed bankruptcy on October 1, 2009 and made a college savings contribution of $5,000 on August 1, 2009 and $10,000 on June 1, 2007, the $10,000 contribution would be fully protected in bankruptcy while the $5,000 contribution could be seized by the bankruptcy trustee and distributed to creditors. To find out more about what assets are exempt in bankruptcy, please contact a Dallas-Fort Worth bankruptcy attorney today.