Warning to Grandparents and Others: Bankruptcy Filing by A Section 529 Account Owner Can Result in Loss of a Contribution Within Last 720 Days

Date
2009-12-04
Authors
Harl, Neil
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Abstract

A recent Bankruptcy Court decision1 interpreting an amendment in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act2 has confirmed that the 2005 amendment poses a substantial risk where the account owner files bankruptcy within 720 days or less of contributions made to a Section 529 plan. Part or all of the contributions within that period became property of the bankruptcy estate (the debtor had a legal interest in the account as of the petition date) and the contributions are not fully excluded under 11 U.S.C. § 541(c)(2).3 That poses a risk that many had not anticipated when contributions were made to the account.

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