Protecting an Education 529 Plan in Bankruptcy

September 1, 2016

Qualified state tuition programs, also known as “529 plans,” are growing in popularity as a way to save for your child’s future education.  Given the rising costs of college, having this plan waiting for your children can be one of the best gifts that you can give them.

What if you have a plan established at the time of filing for bankruptcy?

What occurs to these funds will hinge on when the funds were deposited into the account. So let’s take a look at the three time periods that matter.

Funds deposited less that 1 year prior to filing for bankruptcy: These funds are afforded no special protection. You will only have your D5 “wildcard” exemptions to protect those funds.

Funds deposited between 1 & 2 years prior to filing for bankruptcy: Under 11 USC 541(b), the first $5,000.00 deposited 12-24 months prior to bankruptcy is protected. The remaining would need to be protected with whatever D5 Wildcard exemptions you have left over.

Funds deposited more than 2 years prior to filing for bankruptcy: Under 11 USC 541(b), anything deposited into a 529 plan more than 2 years prior to filing for bankruptcy is fully protected.

Additionally, some states have special exemptions, with more loose rules, that you can use to protect these 529 plans.  Unfortunately, Michigan in behind the curve in that respect. If you have any further questions regarding 529 plans or other bankruptcy questions, please do not hesitate to contact me at (616) 920-0555 or