How To Protect an Education Savings Account in Bankruptcy
You could lose your education savings account if you file for bankruptcy.Your bankruptcy estate will be determined by the bankruptcy Trustee.The Trustee will use non-exempt assets to pay off your debts if you file for Chapter 7.You may be exempt from the estate in certain circumstances.If you don't, you should consider filing for Chapter 13 or non-bankruptcy.
Step 1: The account is for a person.
You should check the beneficiary designation on your account.If your child, stepchild, grandchild or step-grandchild is one of the following, you can exempt your ESA from your bankruptcy estate.
Step 2: When did you make your deposits?
Some deposits will be exempt, but others won't.If you make a deposit within a year of filing for bankruptcy, it's not protected.July 1, 2016 is when you might file for bankruptcy.They are not exempt if you made deposits in August.The exemption is up to $6,225 per beneficiary.$12,450 is exempt if your account has two beneficiaries.Deposits made more than 720 days prior to the filing of a bankruptcy are completely exempt.
Step 3: You should read your state's law.
It is possible that your state law will change the amount that you can exempt.Half of the states have protections on the books.To discuss this issue, you should meet with a bankruptcy attorney.
Step 4: Meet with an attorney.
You should talk to a qualified attorney about your options.Whether your state law protects your savings account more than the federal law is one of the issues you need to discuss.You can get a referral from your local bar association.When you have a name, call the lawyer to schedule a consultation.Ask the lawyer how much he charges for the consultation.
Step 5: Should Chapter 13 be preferable?
You can keep your property in a Chapter 13 case.You come up with a repayment plan.At the end of the repayment period, the debts are wiped out.You have to pay an amount of money equal to non-exempt property.If you have $15,000 that isn't exempt, you can keep the account, but you need to pay your debts.You may not be able to do a Chapter 13 bankruptcy if you can't come up with the money.The Trustee can seize the non-exempt money if you do a Chapter 7.If a Chapter 13 is better for your case, talk to your lawyer.Your lawyer will need to consider many factors.
Step 6: There are alternatives to bankruptcy.
If you have a lot of money in an ESA that isn't exempt, you might be better off not filing for bankruptcy.Debt counseling is one of the alternatives you should look into.A debt counselor can help you come up with a plan to pay off your debts.The debt counselor can try to reduce the amount of principal or interest that you owe.Once you come up with a plan, you make a single payment to your debt counselor, who then distributes your payments.Negotiate on your own.You can try and negotiate a reduction in the amount you owe by contacting each creditor.You have to pay them individually.Take care of your debts.If you want to consolidate your debts, you can get a loan or use a low-interest credit card.
Step 7: You can negotiate with your debts.
You could try to negotiate with your creditors on your own.Mention that you are thinking of filing for bankruptcy to maximize your advantage.If you file, you'll only get pennies on the dollar in many situations.They might be willing to cut you a break if you scare them with a threat of bankruptcy.Initially, 15% of the debt should be offered.If you owe $40,000 in credit card debt, you can offer to pay $6,000.Don't agree to pay more than 50% of the debt.Most of them will settle for less than 50%.If possible, pay in cash.If a creditor knows they can get immediate cash, they might be willing to cut a deal.For more information, see Negotiate with Creditors.
Step 8: Get the forms.
If you hire a lawyer, they can fill out your petition.If you want to file on your own, you can get a packet of forms from the court clerk.You should use an attorney.People who file on their own have lower rates of being approved.You can find the nearest court.The U.S. Courts locator feature can be used to find the federal courts you're looking for.You can type in your zip code to find the court type.The forms can be found on the U.S. Courts website: http://www.uscourts.gov/forms/bankruptcy-forms.
Step 9: It's a good idea to report your ESA on the correct form.
Schedule A/B must be filled out by people who are filing for bankruptcy.The current value of your education savings account will be reported to you on line 24.
Step 10: You can claim your exemption.
You need to provide a brief description of the account and state that you are referring to line 24 of Schedule A/B on this form.You will have to state the amount of the exemption you are claiming.The laws that allow for the exemption should be mentioned.This is the federal law or the state law.This information should be in your attorney's possession.