How Will Bankruptcy Impact My Child’s College Fund?

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How Will Bankruptcy Impact My Child’s College Fund?

The cost of tuition continues to skyrocket. If you’ve done your best to plan ahead for your child by setting aside money in a 529 account, it’s natural to wonder what might happen to these funds if you file for bankruptcy.

Fortunately, we can help evaluate your situation and determine how best to protect this vital investment.

Step 1: Choosing the right form of bankruptcy is paramount.

Having a college fund doesn’t stop you from filing Chapter 7 as long as it meets certain requirements which would make it possible to protect with an exemption. For example, the fund must be over two years old to protect every last penny inside. If the fund is over a year old you can protect up to $5000.

The account must also be set up the right way. The beneficiary must be a child or grandchild, not you or your spouse.

If the fund is relatively new we might need to look to a Chapter 13 bankruptcy to protect the money. This would also be the case if you are the beneficiary on the fund.

Step 2: You need to recognize college funds aren’t the only potential issue here.

Some trustees are getting downright nasty about recouping money for creditors at almost any cost. They are claiming payments made to a child’s college are fraudulent because they say parents don’t receive ‘reasonably equivalent value for those payments.’ This spurious argument jeopardizes a child’s education by demanding the university return the money. This, in turn, often means the child is unable to attend.

The phenomenon is known as tuition clawback, and it hasn’t always mattered that parents are making contributions to their child’s education in good faith. Some trustees have successfully argued parents have no obligation to pay for a child’s higher education, especially as children are often legally adults by the time they go to college.

The only defense against this nasty phenomenon is to do everything right, and that means having a qualified bankruptcy attorney by your side.

Step 3: Don’t let fear over your child’s education stop you in your tracks.

You probably can’t afford to wait until your child is out of school. We’ve said it before, and we’ll say it again. Most people wait too long to file to begin with. And if we can avoid it, we want to see you get your fresh start before you enter your golden years.

You just need to make sure you’re not making any major mistakes. That’s where we come in.

Don’t worry. Filing bankruptcy with a lawyer’s help is more affordable than you think. And we’ve even taken steps to make it even easier with a free initial consultation and reasonable payment plans.

If you’ve got concerns over a child’s educational fund, don’t wait. Contact our offices today so we can help you protect your child’s future and your own.

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