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529 College Savings Plans Are Now Protected from Creditors

Missouri Gov. Mike Parson signed a bill into law in June 2022 that protects 529 college savings plans in personal bankruptcy filings. Before this legislation, Missouri residents could be forced to liquidate the children’s college savings plan to pay creditors.

A benefit of a 529 college saving plan is that the owner retains control over the account. They can take back contributions or change the designated beneficiary. The drawback was the account’s vulnerability to creditors. SB 718 changes that.

529 Account Owners & Beneficiaries Are Protected

The legislation provides bankruptcy protection for the Missouri Education Savings Program and the Missouri Higher Education Deposit Program. The act limits the protection to proceedings filed or on appeal after Jan. 1, 2022, and only for designated beneficiaries that are lineal descendants of the account owner.

The act provides for circumstances that are not subject to bankruptcy protection:

  • Claims of any creditor of an account owner as to amounts contributed within a two-year period preceding the date of the filing of a bankruptcy petition under 11 U.S.C. Section 101 et seq., as amended
  • Claims of any creditor of an account owner as to amounts contributed within a one-year period preceding an execution on judgment for such claims against the account owner

Additional Missouri Bankruptcy Exemptions

College savings plans are not the only assets that creditors cannot receive. However, it is important to note that an individual must live in Missouri for at least 730 days before filing for bankruptcy or else use their previous state’s rules.

Exemptions available to Missourians include the following:

  • Stimulus payments, tax credits, and child credits using the federal COVID-19 recovery rebate exemption
  • Tax-exempt retirement accounts like 401(k), defined benefit plans, and Keoghs
  • Up to $1.5 million in traditional and Roth IRAs
  • Veteran’s benefits
  • Workers’ compensation
  • Health savings accounts
  • Up to $15,000 of equity in real estate where you live ($5,000 in a mobile home in which you live)
  • Up to $3,000 of equity in a car
  • A wildcard exemption of any property up to $600 in value (head of family gets an additional $1,250 plus $350 for each child)
  • Health aids
  • Up to $1,500 value in a wedding ring
  • Social security benefits
  • Unemployment compensation

You can file for bankruptcy in Missouri after living in the state for more than 180 days.

Chapter 7 vs. Chapter 13 in Missouri

Most individuals file for bankruptcy under either Chapter 7 or Chapter 13.

Chapter 7 is often referred to as liquidation bankruptcy because non-exempt assets can be sold to satisfy what is owed to creditors. Any remaining qualifying debt is discharged or erased. Chapter 7 offers a fresh start. Credit card debt, unsecured personal loan obligations, past rent due, and other balances disappear. Child support, alimony, certain taxes, and most student loans are not dischargeable. The means test determines whether a person qualifies for Chapter 7. You pass if your monthly income is below the median for a household of your size in Missouri.

Anyone who makes too much to qualify for Chapter 7 – or has non-exempt assets they want to hold onto – should consider Chapter 13. This bankruptcy does not erase debt; it restructures it. A three- or five-year repayment plan is established to pay creditors a portion of what is owed. If the debtor successfully completes the repayment plan, the remaining debt is typically forgiven.

Talk to a Bankruptcy Attorney

If you are unable to pay your monthly bills, speak with an experienced attorney at Licata Bankruptcy Firm PC about your situation. Learning about your options can more quickly put you on the road to economic recovery.

Discover if bankruptcy is right for you. Call (417) 213-5006 to schedule a free consultation