Contributions to an Educational Savings Account within one year prior to filing bankruptcy become part of the estate

Contributing to an Educational Savings Account one year before filing for bankruptcy can expose the funds to the bankruptcy trustee.  Generally, contributions to an education IRA under section 529 of the Internal Revenue Code (IRS) are excluded from the bankruptcy estate and therefore do not fall within the trustee’s jurisdiction.  However, there are exceptions.  Under the bankruptcy code, contributions made within one year before the petition is filed are not excluded, meaning they fall within the jurisdiction of the trustee and could be subject to liquidation.  Contributions greater than $5,850 per beneficiary made between two and three years before the petition is filed are not excluded either.

All is not lost if you fall into one of these exceptions.  You can still exempt these contributions under the wildcard exemption if sufficient amount is available.  Lesson learned – when contemplating bankruptcy contact a bankruptcy attorney before making any financial decisions.

Steven Striffler
Practice is Focused on Bankruptcy & Construction Law