The cost of education is relatively expensive, and many Americans are having a hard time paying for further education after high school. A quick look at the numbers will tell you that the average tuition cost for an in-state college was approximately $24,061 in the 2015-2016 academic year. This number increases significantly to $47,831 for those who wish to study at a private college. As a parent, you may have already started saving for your children's college tuition. However, if you are falling onto hard times and are looking to file for bankruptcy, it's important that you know how filing for bankruptcy will affect your children's college fund. Here are 2 things you should consider.
The Primary Account Owner of Standard Savings Accounts
If you are helping your children save for college by making sure they know how to manage their own savings account, you will need to carefully scrutinize how the savings account was set up with a bankruptcy attorney to determine whether the funds saved are at risk of getting seized. Generally speaking, if the account is set up under the child's name and denoted as a trust account, it will not be affected by the bankruptcy fling. This is because the account is legally your child's.
On the other hand, if the account was set up under your name or held jointly by your child and you, your creditors may be able to seize the funds in the account.
The Type of Accounts Protected by the Federal Bankruptcy Code
The type of savings account you set up will also have a say as to whether the funds can be seized or not. There are two specific types of accounts that are protected by the federal bankruptcy code: the educational IRA and the section 529 savings account. Both of these savings account offer different types of tax benefits to their beneficiary. If you sense trouble ahead, you might want to switch from a standard savings account to one of these accounts.
When the funds were deposited will also influence whether the funds are protected or not. For example, money that has been deposited in a 529 savings account two years prior to the filing will be protected; however, only $5,850 per beneficiary will be protected for funds deposited within a year to two years prior to the filing.
Understanding the type of account that you have set up will help you determine whether filing for bankruptcy may affect your children's college funds. It's important to disclose the presence of these accounts to your bankruptcy attorney, so that there will be no surprises during the filing process.
For more information, contact Thomas A Blake or a similar legal professional.