Are your children’s education saving funds exempt when you file bankruptcy? (Lancaster attorney David Lozano is here to put your mind at ease!)
Couples and single parents frequently take advantage of my offer for a free consultation to discuss their options for dealing with debt. For many their concerns involve not only them, but their children as well! Parents worry whether the savings they’ve set aside for their children’s future education will be affected when they file bankruptcy.
I am pleased to say that you can protect your children’s education funds by using special savings plans, such as a 529 or Coverdell Education Savings Account (ESA). Wikipedia compares and contrasts the two plans well:
Important differences with 529 plans
- Coverdell ESAs have lower maximum contribution limits; currently $2,000 can be contributed per year per child, while 529 plans generally have no restrictions on contributions, up to the maximum lifetime contribution.
- Coverdell ESAs can allow almost any investment inside including stocks, bonds, and mutual funds, while 529 plans only allow a choice among a number of state run allocation programs. The rules for investments allowed in ESAs are the same as those for IRAs.
- Balances in a Coverdell ESA must be disbursed on qualified education expenses by the time the beneficiary is 30 years old or given to another family member below the age of 30 in order to avoid taxes and penalties; there is no age limit for 529 plans.
- Coverdell ESAs allow withdrawing the money tax free for qualified elementary and secondary school expenses; 529 plans do not.
- The income level of a donor may affect contributions into a Coverdell ESA, but would not affect contributions to a Section 529 plan.
Important similarities to 529 plans
- Money in both a Coverdell ESA and a 529 plan is not considered the child’s (beneficiary’s) money when applying for federal financial aid as long as the owner of the account is someone other than the beneficiary, such as a parent. This works to increase the child’s potential financial aid because parents are expected to contribute only around 6% of their assets to finance college education, as opposed to the child’s 35%.
- The custodian of both an ESA and a 529 plan can designate a new beneficiary without incurring taxes or penalties provided that the new beneficiary is an eligible family member of the previous beneficiary.
When filing bankruptcy, money that has been in a 529 or ESA savings account for over two years is exempt from the bankruptcy process! And up to $5,000 worth of money in the account that has accumulated for at least a year but under two years is also exempt. In addition, only money that has been added to the savings account within a year prior to bankruptcy is available to creditors–everything else is protected!
The future depends on the well-being of the next generation, and a large part of that well-being involves the extent of their intellectual growth! Visit our Lancaster location for a free consultation. Protecting the education funds of our children helps to ensure their continued intellectual growth!
I’ve told you in past blog posts about the drawbacks that go with payday loans, but a bad payday scheme isn’t the only risky deal out there! Banks offer what is called an overdraft protection plan to prevent a check from bouncing due to insufficient funds. Of course this sounds like good thing but, as with the payday loans, there is a major downside!
If you should happen to make a withdrawal that exceeds the amount of money you have in your account, you are charged a penalty fee. Well that sounds reasonable, right? The bank simply wants to discourage people from overdrawing their accounts. The only problem is that the fee can be up to $20 or $35 per overdraft! On top of that, there is a $2 to $5 daily fee until the balance is paid!
An overdraft is most common at the ATM or when using a debit card, but it can also occur when writing a check. Overdrawing an account usually happens when someone doesn’t monitor his or her account activity as closely as he or she should. But even the most scrupulous account holder is capable of making a mistake!
Of course by itself, an overdrawn account doesn’t typically result in bankruptcy, but the little things can add up! Someone who is dealing with the loss of a job or medical bills doesn’t need anything else on his or her plate! At the Law Offices of David Lozano, we do everything we can to make your financial life easier! Stop in at our West Covina location or contact me for a free consultation.
Commercial and Internet ads for payday loans are a dime a dozen these days. And if you’ve seen one you’ve seen them all. Payday loans all work basically the same way–you write a check (or grant the lender permission to access an electronic account) to cover the money you are borrowing plus the finance charge. This transaction is then held by the lender until your next payday. Of course if you don’t have the money to cover the cost of the loan by your next payday you’re pretty much out of luck!
It is likely this and many other reasons why payday loans are legal in only thirty-seven U.S. states–with our sunny California being one of them. Nine times out of ten the consequences outweigh the benefits of getting a payday loan. And with online payday loans, there is an added risk of fraud. You hear about online scams all the time, and they are definitely something you do not want to happen to you! You need to be careful when giving out financial information in any situation, but be particularly careful when it’s over the Internet to a payday loan service!
If you find yourself struggling to make ends meet a payday loan is probably not your best option. Contact me for a free consultation and we will discuss your financial situation to determine what is the best course of action for you!
Do you give yourself and your credit card enough credit? (Bankruptcy attorney David Lozano sheds a little limelight on the subject!)
It is probably safe to say that the majority of Californians are credit cardholders. The U.S. Census Bureau recently collected data on the number of credit cardholders there were in the United States and found that there were 159 million in 2000 and 176 million in 2008. With this data, they then estimated the count for 2011 to be 183 million. I’d like to think these astonishing figures support the idea that Americans are, in general, becoming more financially responsible!
Getting your own credit card is almost like a right of passage for many young adults. It symbolizes that they are–or at least have the potential to be–financially responsible. When managed correctly, a credit card is a useful and often beneficial method of payment. Some credit cards even come with rewards or cash back on essentials, such as groceries, gas, dining, or travel.
There are many brands of credit cards offered by different companies, but did you realize there are just three basic types of credit cards?–unsecured cards, high risk cards, and secured cards.
An unsecured card is most commonly offered to individuals with a good, solid credit history. These cards do not require cash deposit and have no collateral loans. High risk cards often go to people who have a slightly less polished credit history. These cards tend to have an activation fee, annual fees, and late payment penalties attached to them. The last type is a secured credit card, which comes with steep annual fees and late payment penalties. This type of credit card functions similarly to a debit card in that you need to have a certain amount of cash in an account as “insurance”.
When it comes to credit cards, there are many options out there. But no matter what type of credit card you have, as a bankruptcy attorney, I am equipped to handle any type of credit card debt you may have. Contact me for a free consultation on settling your credit card debt!
Chapter 7 or Chapter 13–Part 2 (Hint: West Covina bankruptcy attorney David Lozano is here to provide advice!)
The key to deciding which bankruptcy claim is right for you comes down to the specifics of your unique circumstances. Chapter 7 and Chapter 13 were designed to be compatible with the common circumstances seen in bankruptcy, so it’s simply a matter of selecting the best fit if you qualify for both. It’s kind of like choosing which pair of jeans to wear. Sure, they both get the job done, but only one of them makes the cut when you want to look your best–or get your finances and life in order!
Some things to take into consideration when choosing the best bankruptcy plan for you include what kind of assets, mortgage loan or car payments you have. Are you responsible for any dependent children? Is there a divorce involved? Another important question to ask yourself is whether you are simply behind on your bills and need a little bit of leeway in order to catch up. The factors are numerous, but together we will figure it all out.
Depending on these and many other circumstances, Chapter 7 or Chapter 13 may be just the solution you’re looking for! You’ve probably been financially responsible all your life and just got hit with medical bills or got laid off unexpectedly. Whatever the reason, filing bankruptcy provides the means to get back on track with a fresh start!