Planning for College While You’re in Chapter 13 Bankruptcy

If you’re in a Chapter 13 bankruptcy and have children heading toward college, you may be asking:

• Am I allowed to save for college?

• Will the trustee take college savings?

• Does Chapter 13 mean my kids can’t go to college?

• Will my plan payment go up if college expenses are coming?

These are valid concerns — and the answers are more nuanced than most people are told.

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The Big Picture (Important to Understand First)

Chapter 13 is designed to:

• Repay creditors what the law requires

• Based on your current disposable income

• Over a fixed period (3–5 years)

It is not designed to prevent your children from attending college — but it does limit what you can prioritize financially during the plan.

The key is what counts as a reasonable expense during the plan versus after it.

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Can I Save for My Child’s College During Chapter 13?

Short Answer

👉 Usually, no — not in a meaningful way during the plan.

Most Chapter 13 trustees do not allow ongoing college savings contributions while unsecured creditors are being paid.

Why?

• College savings are considered voluntary

• Creditors are legally entitled to your disposable income first

• Trustees view college savings as future discretionary spending

This can feel unfair — but it is the current legal reality in most districts.

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What About Existing College Savings (529 Plans, Accounts)?

This Is Very Important

Existing college savings must be disclosed, but how they’re treated depends on:

• Who owns the account

• The balance

• When contributions were made

• State and federal exemption rules

529 Plans

• Often treated as property of the parent

• May be partially protected depending on:

  • Timing of contributions

  • Amounts

  • Applicable exemptions

⚠️ Do not move or drain college accounts before filing without legal advice — that can create serious problems.

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Can the Trustee Force Me to Use College Funds to Pay Creditors?

Sometimes — but not always.

Trustees may challenge college funds if:

• Contributions were made shortly before filing

• Balances are significant

• Exemptions don’t fully protect them

Many cases resolve through:

• Exemption planning

• Valuation arguments

• Negotiation

This is highly fact-specific.

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Paying College Tuition During Chapter 13

Can I Pay for College While in the Plan?

Sometimes, yes — but with limits.

Trustees are more likely to allow:
✔ Required tuition payments when college attendance is current
✔ Reasonable, documented expenses
✔ Expenses that replace other household costs (e.g., food, housing)

Trustees are less likely to allow:
❌ Private college tuition with high costs
❌ Luxury housing or travel related to school
❌ Large lump-sum payments without approval

Communication matters.

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FAFSA, Financial Aid, and Chapter 13

Important (and Often Overlooked)

Chapter 13 can actually help with financial aid eligibility.

• FAFSA looks at income and assets

• Bankruptcy often lowers reportable assets

• College costs are not considered “luxury” by FAFSA

Your bankruptcy:

• Does not disqualify your child from aid

• May increase need-based eligibility

Parents are often surprised by this.

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Parent PLUS Loans and Chapter 13

Be Careful Here

Parent PLUS loans:

• Are student loans

• Are very difficult to discharge

• Can create long-term financial strain

Trustees often scrutinize taking on new educational debt during Chapter 13.

You should not take out Parent PLUS loans during an active plan without legal guidance.

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What Chapter 13 Does Not Require

❌ It does NOT require your child to skip college
❌ It does NOT require you to pay for college at any cost
❌ It does NOT mean your child can’t use loans or grants
❌ It does NOT mean your family’s future is ruined

It does require short-term sacrifice.

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Practical, Healthy Planning Strategies

During Chapter 13

• Focus on finishing the plan successfully

• Avoid new debt

• Use FAFSA and grants

• Communicate with your attorney about upcoming expenses

After Chapter 13

• You regain full financial flexibility

• College savings can resume

• Credit rebuilding improves borrowing options

Chapter 13 is temporary — college planning is long-term.

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Common Myths

“The trustee will take all college money.”
Not always — but it must be handled correctly.

“I can hide small college accounts.”
Dangerous — nondisclosure is far worse.

“College savings are always allowed.”
Usually not during the plan.

“Bankruptcy ruins my child’s future.”
False — many families do better after Chapter 13.

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The Bottom Line

✔ Chapter 13 limits college saving during the plan
✔ Existing college funds must be disclosed and protected
✔ Paying tuition may be allowed with documentation
✔ Financial aid often improves
✔ The plan is temporary — your child’s future is not

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Talk to a Bankruptcy Attorney Before Making College Decisions

College planning during Chapter 13 requires strategy, timing, and honesty — not panic.

Ginsburg Law Group helps families:

• Protect existing college savings

• Navigate trustee expectations

• Coordinate Chapter 13 and tuition timing

• Avoid costly mistakes with student loans

👉 Contact us today if you’re in Chapter 13 and worried about your child’s college future.

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529 Plans and Bankruptcy

What Parents Need to Know

529 plans are one of the most misunderstood assets in bankruptcy. Many parents assume they are either completely protected or automatically taken. The truth is in between.

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Are 529 Plans Property in Bankruptcy?

Yes.
If you are the account owner, a 529 plan is considered your property in bankruptcy — even though the money is intended for your child.

That means:

• It must be disclosed

• It may be reviewed by the trustee

• Protection depends on timing, amount, and exemptions

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Federal Protection for 529 Plans (Important)

Under federal bankruptcy law, certain 529 contributions may be protected if:

✔ The contributions were made more than 2 years before filing
✔ Total protected contributions are within statutory limits
✔ The beneficiary is a child, stepchild, or grandchild

Contributions made within 2 years of filing are more vulnerable.

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Chapter 7 vs Chapter 13 Treatment

Chapter 7

• Trustees may scrutinize 529 balances closely

• Recent contributions are at higher risk

• Exemptions and timing are critical

Chapter 13

• You usually keep the account

• But trustees may argue that ongoing contributions should stop

• Value may affect plan payments indirectly

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What NOT to Do With a 529 Before Filing

❌ Do not drain the account
❌ Do not change ownership
❌ Do not transfer funds to the child
❌ Do not “hide” the account

These actions can create fraudulent transfer problems.

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Bottom Line

✔ 529 plans are not automatically protected
✔ Timing of contributions matters
✔ Disclosure is mandatory
✔ Planning can preserve funds

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Talk to a Bankruptcy Attorney Before Filing

If you have a 529 plan, planning before filing matters more than the balance itself.

Ginsburg Law Group helps parents:

• Protect college savings

• Evaluate exemption strategies

• Avoid trustee challenges

• File safely

👉 Contact us before filing if you have college savings.

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Can a Bankruptcy Trustee Take My Child’s College Savings?

Sometimes — but not automatically, and not always.

Trustees do not “take college money because they’re mean.” They look at legal ownership and fairness to creditors.

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The Key Question Trustees Ask

“Who owns the money?”

If you own the account, the trustee treats it as your asset, regardless of intent.

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College Savings at Higher Risk

College funds are more likely to be challenged if:

• The parent owns the account

• Large contributions were made shortly before filing

• No exemption applies

• The balance is significant

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College Savings at Lower Risk

Funds are safer when:
✔ Contributions are old
✔ Amounts are modest
✔ Proper exemptions apply
✔ The case is Chapter 13

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What Trustees Usually Cannot Do

Trustees usually cannot:
❌ Take funds owned solely by the child
❌ Take exempt assets
❌ Ignore timing rules

But they can negotiate, demand turnover, or adjust plan payments.

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Important Reality Check

Trustees are more likely to:

• Stop future contributions

• Challenge recent deposits
  Than to wipe out long-standing, modest college savings.

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Bottom Line

✔ Trustees can review college savings
✔ They don’t automatically seize them
✔ Timing and ownership matter
✔ Planning prevents panic

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Talk to a Bankruptcy Attorney Early

College savings issues are much easier to manage before filing than after.

👉 Contact Ginsburg Law Group if you’re worried about college funds in bankruptcy.

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Student Loans vs Parent PLUS Loans in Chapter 13

What Parents Should Know

Not all education loans are treated the same — and the differences matter a lot in Chapter 13.

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Student Loans (Child’s Loans)

If the loans are:

• In the student’s name

• Not co-signed by you

Then:
✔ They are not your debt
✔ They are not part of your bankruptcy
✔ They do not affect your Chapter 13 plan

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Parent PLUS Loans (Big Risk Area)

Parent PLUS loans are:

• In the parent’s name

• Legally your debt

• Extremely difficult to discharge

In Chapter 13:

• They are treated as unsecured debt

• Payments may continue after bankruptcy

• Taking them out during Chapter 13 is risky

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Can I Take Out Parent PLUS Loans During Chapter 13?

⚠️ Usually not without court or trustee approval.

Trustees often object because:

• It increases long-term debt

• It undermines plan feasibility

• It shifts resources away from creditors

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Better Alternatives to Parent PLUS Loans

✔ Federal grants
✔ Scholarships
✔ Work-study
✔ Community college transfers
✔ Waiting until after Chapter 13 if possible

Chapter 13 is temporary — Parent PLUS debt is not.

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Bottom Line

✔ Your child’s loans don’t affect your case
✔ Parent PLUS loans do
✔ New education debt during Chapter 13 is dangerous
✔ Strategy matters more than emotion

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Talk to a Bankruptcy Attorney Before Signing

Do not sign Parent PLUS paperwork during Chapter 13 without advice.

👉 Contact Ginsburg Law Group before taking on education debt.

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College Planning While in Chapter 13: Decision Chart

Use this as a general guide, not legal advice.

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Step 1: Do You Have Existing College Savings?

⬇️ Yes → Step 2
⬇️ No → Step 4

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Step 2: Who Owns the Account?

⬇️ Parent → Higher scrutiny
⬇️ Child → Lower risk

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Step 3: When Were Contributions Made?

⬇️ Recent (within 2 years) → Higher risk
⬇️ Older → Safer

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Step 4: Is Your Child Currently in College?

⬇️ Yes
✔ Tuition payments may be allowed with documentation

⬇️ No
⚠️ Trustees usually block new savings during plan

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Step 5: Are You Considering Parent PLUS Loans?

⬇️ Yes
❌ High risk during Chapter 13

⬇️ No
✔ FAFSA, grants, scholarships preferred

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Best Strategy Summary

✔ Disclose all college funds
✔ Avoid new savings during plan
✔ Use financial aid aggressively
✔ Finish Chapter 13 successfully
✔ Resume full planning after discharge

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Final Reassurance

Chapter 13 requires temporary sacrifice, not permanent loss of opportunity.

Many families:

• Finish Chapter 13

• Rebuild credit

• Resume saving

• Successfully send kids to college

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Talk to a Bankruptcy Attorney About College Planning

College and Chapter 13 planning should be coordinated — not guessed.

Ginsburg Law Group helps parents:

• Protect existing college funds

• Navigate trustee expectations

• Avoid Parent PLUS disasters

• Plan for life after Chapter 13

👉 Contact us today if you’re in Chapter 13 and planning for college.