If you’re filing for Chapter 13 bankruptcy and supporting your college age children, you may be worried that it will impact your kids negatively. Fortunately, following a few guidelines can help you get through the process.
- No hard rules. While federal bankruptcy rules allow an educational expense of $1875 for the means test for children under 18 years old and only for primary and secondary school, there are no hard and fast rules about paying for an adult child’s educational expenses while in bankruptcy. In some cases a bankruptcy court may allow it if for example the educational expenses are part of a divorce settlement, and in other cases the trustee may view it as a luxury. This can vary from court to court.
- More financial aid. If your finances are high enough to qualify you for Chapter 13 bankruptcy, then filing it may do two things 1) disqualify you from receiving a PLUS student loan on your child’s behalf and 2) instantly make your child eligible for more financial aid in the form of student loans in their own name.
- Assets secured. If you saved money for your child’s college education using a 529 college savings plan, this money will probably not be considered part of your assets for the purposes of filing bankruptcy. This means that your child will be allowed to use the 529 college savings plan to pay for their tuition and other educational costs. You can also continue to contribute money into a 529 college savings plan up to 720 days (about 2 years) before filing bankruptcy.
If you’re worried about your college aged child’s educational costs, work with a bankruptcy attorney to create a plan that will minimize the negative impacts of your bankruptcy.