College Savings Accounts Cannot be Liquidated During Chapter 7
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College savings may be exempt in bankruptcy

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January 19, 2011

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College savings may be exempt in bankruptcy

Consumers who are considering filing for bankruptcy to discharge insurmountable debt may already know that some personal possessions, a certain part of their home equity and their vehicles may be exempt from liquidation, but a college savings account may also be safe during the filing. A 529 plan or Coverdell account may be exempt from liquidation under certain circumstances and depending on the filer's state laws.

The account fares typically better the older it is, according to SmartMoney.com. If it's under two years old, lenders can seize everything in the account exceeding $5,000.

In the event that the plan is older than two years, its contents should generally be safe - as long as the beneficiary of the savings is a child or grandchild of the consumer filing for bankruptcy and depending on the laws of the state where the bankruptcy was filed, according to the news source. In the event that the beneficiary is someone else, including the bankruptcy filer himself, the funds may not be safe. Someone saving money for their own college education may have their funds seized during a bankruptcy filing.

Those who'd like to better understand how state and federal bankruptcy laws apply to their college savings accounts may want to contact a bankruptcy attorney.


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