How Does Bankruptcy Affect Educational Savings Accounts?
The average cost of college in 2025 within the United States was more than $38,000 per year, with students at in-state public universities spending approximately $27,000 per year and out-of-state or private college students spending nearly $60,000 per year, according to the Education Data Initiative. Each year, those costs tend to increase. To put that data another way, even a bachelor’s degree from an in-state, public university can cost more than $100,000 for a college student today, and that total may only increase in future years. Given the high cost of a college education, many parents begin saving for their children early on. Over time, parents may end up saving tens of thousands of dollars — or more — for their child’s future education. For many parents, these savings accounts are a major concern when they begin to experience financial problems and consider personal bankruptcy.
How does bankruptcy affect educational savings accounts? Typically, and for most debtors, bankruptcy does not involve the reduction or liquidation of a college savings account. Our West Palm Beach bankruptcy lawyer can explain in more detail below.
Knowing the Type of Bankruptcy You Are Filing For in Florida
First, you only need to consider the liquidation of assets if you are planning to file for Chapter 7 bankruptcy. Debtors who file for Chapter 13 bankruptcy (or Chapter 11 bankruptcy, which is necessary in some cases) do not have any assets liquidated. Accordingly, any educational savings accounts set up for their child’s benefit, along with other accounts, will remain fully intact.
If you are planning to file for Chapter 7 bankruptcy, which is a form of liquidation bankruptcy, then you should know that the educational savings account is likely “exempt” and will not be liquidated.
Exemption of Educational Savings Accounts
When parents establish educational savings accounts for their child’s future college and university needs, they typically set up a particular type of account known as a 529 plan. Under Section 222.22 of the Florida Statutes, any funds in a “validly existing qualified tuition program authorized by Section 529 of the Internal Revenue Code” are exempt. This includes assets in a Florida Prepaid College Trust Fund.
An exception would be if you have been saving for college but did not set up a 529 plan or another type of educational savings account that is exempt. A bankruptcy lawyer can speak with you today about the specific accounts you have and their exemption status.
Contact Our West Palm Beach Bankruptcy Lawyers to Learn More About Protecting Your Assets in Bankruptcy
If you have been putting money away for your child’s college education, it is unlikely that you have to be concerned that this account will be liquidated when you file for personal bankruptcy. Regardless of whether you are filing for Chapter 7 or Chapter 13 bankruptcy, educational savings accounts have protections, and exemptions often apply. It will be important to discuss the specific details of any educational accounts with a bankruptcy lawyer to ensure that the funds are protected, especially if you are planning to file for a liquidation bankruptcy. One of the experienced West Palm Beach bankruptcy attorneys at Kelley Kaplan Delaney & Eller, PLLC can speak with you today about your assets and any bankruptcy concerns or questions you have. Contact our firm to learn more about how we can assist you.
Sources:
leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0200-0299/0222/Sections/0222.22.html
educationdata.org/average-cost-of-college
