When parents are dealing with burdensome and manageable debt, their best option may be to get a fresh start for their family through bankruptcy. One concern is how they can help their children pay for college and still get the debt relief the family needs.

Your Children’s Credit

One way in which many families pay for college is through student loans. If your child were to apply for a loan in their own name your bankruptcy will not impact or appear on their credit. 

529 Accounts

“529 plans” are qualified state tuition programs, also known as “529 plans,” which allow parents and others to put money into an account which can be used for a child’s education. Whether or not your bankruptcy will impact your child’s 529 account depends on when you put funds in the account. If the money was placed in the 529 less than a year before you filed, then it will be included in the bankruptcy estate absent the use of a specific exemption.  Those funds deposited one and two years before filing receive some protection up to a particular amount. 529 contributions made more than two years before the bankruptcy will be adequately protected.

FAFSA

The FAFSA, or Free Application for Federal Student Aid, is a form that parents and children must complete to apply for federal grants, loans, and work-study funds for college. Although your bankruptcy will not affect your child’s ability to apply for a federal loan or receive a federal grant, if you filed within the past five years you will not be permitted to apply for a Parent/Plus federal loan to help them pay for college. 

While there may be limits on certain parents loans if you filed for bankruptcy within five years, your child will be able to apply for both private and federal college loans and qualify for grants. Additionally, depending on the timing of the deposits, your child’s 529 may be protected or eligible for an exemption.

We have the knowledge and experience you need to help you understand what you need to do to get a fresh start through bankruptcy while helping prepare for your children’s education. Please contact us online or by phone if we may be of assistance.  http://bestmichiganlawyer.com/contact .