If you have been saving money for your child in an education IRA, and you are considering filing for bankruptcy, then you need to evaluate whether the funds in that education IRA are going to become an issue in your bankruptcy case.  The general rule is that when you file for bankruptcy, pretty much all of your property becomes property of the bankruptcy estate – and any property you have that is NOT exempt under state law must be turned over to the chapter 7 trustee, who will then sell that property and then pay your creditors a pro rata distribution on their claims from the sale proceeds.  Whether or not your property – i.e., the funds in the education IRA – becomes property of the bankruptcy estate is defined in Bankruptcy Code Section 541.  Section 541(a) lists the property that becomes property of the bankruptcy estate, while Section 541(b) lists property that does NOT become property of the bankruptcy estate.  Section 541(b)(5) lists education IRA’s as the type of property that does NOT become property of the bankruptcy estate so long as the funds in the account comply with the following rules:

1. the designated beneficiary of the education IRA must be either your child, stepchild, grandchild or stepgrandchild during the tax year that you made the contribution(s) to the account;

2. funds in the account that are pledged or promised to an entity (such as a bank or other type of creditor) in order to extend credit to you become property of the bankruptcy estate;

3. the amount of funds in the account must comply with the contribution amounts set by the IRS;

4. funds contributed to the account during the 365 days prior to the date you file your bankruptcy case become property of the bankruptcy estate;

5. funds contributed to the account more than 365 days prior to but less than 720 before the date you file your bankruptcy case do NOT become property of the bankruptcy estate if the amount contributed during that period of time was $5,475 or less.  Any amount exceeding $5,475 will be property of the bankruptcy estate.

Before 2012, all Marin County debtors filing for bankruptcy were required to file their cases at the Santa Rosa division Bankruptcy Court.  This was a bit of a headache, because these debtors had to appear at their creditors’ meetings in Santa Rosa, which is a good hour’s drive on the 101, and often in traffic (both ways sometimes!).  Late last year however, the United States Bankruptcy Court, Northern District of California, announced that chapter 13 debtors who live in Marin County, and who are therefore much closer in distance to the San Francisco division Bankruptcy Court, will, at least temporarily, be filing their cases in the San Francisco division court.  This means that their creditors’ meetings, and any other hearings related to their cases, will be located at the San Francisco division as well.

Here is the announcement and here is the reason for the change.

Many of my clients ask me this question, and I tell them the following:

1. The bankruptcy courts keep a file for every person who has filed a bankruptcy case.  Just like all court documents, the file contains a copy of every document filed in the case, including the person’s voluntary petition for bankruptcy, bankruptcy schedules, and anything filed by the trustee or any creditors.  If someone wants to know if you have filed for bankruptcy, then that person would have to go to the bankruptcy court where you have filed your bankruptcy petition.  Then they would have to look up the case number on the bankruptcy court’s public computers, and then request the file from the clerk.  Also, attorneys with access to federal records could also look at your file online.

2. Your creditors will know that you filed for bankruptcy because the bankruptcy court will mail them a copy of your Notice of Bankruptcy.

3. Regarding cases filed in the Northern District of California ONLY, your name will appear on the bankruptcy court’s online calendar page about 2 weeks before your creditors’ meeting, and will be accessible for another couple of weeks after the meeting.  After that, the bankruptcy court’s technology support team seems to remove the old calendars from the website entirely.  If you search your name on google (or other search engines, I imagine – I really don’t know though, as google is the only one I use) during the time that your name is listed on the court’s calendar, then your name will be associated with the bankruptcy court’s calendar page.  But like I said, it’s a very short-term association that lasts roughly 4-5 weeks.

4. If you have given someone permission to access your credit report, then your bankruptcy case number and the date you filed your case will be listed on the report for 10 years from the date your case was filed.

Many bankruptcy court filing fees increased just a couple of weeks ago.  Chapter 7 cases, which used to cost $299, are now $306.  Chapter 13 cases, which used to cost $276, are now $281.  The cost of amending Schedules D, E and F, or the creditor matrix, also just increased from $26 to $30.  For a more complete list of the increased fees, click here.