Are College Savings Safe in Bankruptcy?



Are College Savings Safe in Bankruptcy?

A 529 Plan is also known as a qualified tuition plan for college purposes.  Monies used to fund a 529 Plan grow on a tax free basis so long as upon withdraw the principal plus any growth are used for educational purposes only.  In accordance with the applicable Consumer Bankruptcy Statute, 11 USC Section 541(b)(6) monetary contributions to a 529 Plan within one year of filing the Bankruptcy would be property of the bankruptcy estate.  Funds contributed in excess of $5,000 between one and two years of filing a Consumer Bankruptcy would be property of the bankruptcy estate.  Any funds contributed over two years before the bankruptcy is filed would not be made part of the bankruptcy estate without limitation.   Since there is no limitation after only a two year look back from the date of a bankruptcy filing, the bankruptcy code is relatively favorable regarding college savings in the form of 529 Plans.   I hope this blog post was helpful.

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