Education Savings Accounts in Arizona Bankruptcy
Usually there are two types of education savings accounts that I encounter regularly as a bankruptcy attorney in Arizona; the Education IRA and the 529 savings account. This is understandably a worry for the bankruptcy debtor, or potential bankruptcy debtor. After all, who wants to lose their child’s college savings?
Luckily, Section 541 of the bankruptcy code excludes either of these accounts from becoming property of the bankruptcy estate. There are, of course, like most sections of the code, certain exceptions.
Exception One: if any of the funds were contributed to the accounts (either the IRA or the 529 account) within the last one year prior to the filing date of the bankruptcy case, those funds are NOT protected. Those funds contributed to within a year, would become property of the bankruptcy estate and vulnerable to creditors.
Exception Two: Deposits made to either the 529 account, or the education IRA between one year and two years prior to the filing of the bankruptcy case, have a cap of $5,850.00 per beneficiary. So if you have made a contribution to either of these types of accounts more than one year, but less than two years, only $5,850 of the contribution would be protected per child, or per beneficiary.
As mentioned above, no one wants to put their child’s education savings at risk if faced with a potential bankruptcy. Therefore, it is important to know 100% the implications bankruptcy would have on your child’s educational savings account, before filing a bankruptcy case.
Our office is happy to give a free consultation with an experienced Arizona bankruptcy attorney so that we can discuss your options.
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