SACRAMENTO – As COVID-19 wreaks havoc on the personal finances of California families, a new state proposal authored by Senator Bob Wieckowski and sponsored by California Treasurer Fiona Ma would exempt higher education 529 Scholarshare accounts from creditors in bankruptcy cases. The Senate Judiciary Committee approved Senate Bill 898 earlier today.
“Studies show a college education can substantially increase a person’s earning power over the course of a lifetime and if we do not provide this exemption we are penalizing children by holding them responsible for their parents’ or grandparents’ financial difficulties,” said Wieckowski, a Judiciary Committee member and bankruptcy attorney. “If we are serious about fighting intergenerational poverty, we should pass SB 898 and ensure access to higher education.”
“When a taxpayer files for bankruptcy, a child’s college savings account should be protected,” said Treasurer Ma. “During times like these, we need to protect the next generation and give them every opportunity to succeed.”
California created the Scholarshare 529 college savings accounts in 1999 to help families of all income levels prepare and save for future higher education expenses. Children with savings accounts, however small, are far more likely to enroll and graduate from college.
But unlike retirement plans, 529 accounts are not protected from creditor claims in California. A creditor can attach the account to satisfy a judgment, which can be devastating to a family and reduce access to college. A majority of states have state creditor protection.
“Our student loan debt crisis is now over $1.6 trillion nationally, more than credit card or auto loan debt,” Wieckowski said. “Without a safe and secure way to grow savings for higher education, more students will lose access or become increasingly dependent on loans.”
SB 898 is also supported by the California Low Income Consumer Coalition, Housing and Economic Rights Advocates and Consumer Action.
Senator Wieckowski represents the 10th District, which includes parts of Alameda and Santa Clara counties.