If you have fallen into dire times and need to file for bankruptcy to get rid of the humongous debt, there is some portion of your property that can be protected. According to lawyers of Los Angeles based law firm , the property you live in as well as the furnishings, clothing, a car and some portion of home equity can be protected. In some cases, the value of life insurance policy or the money you received as a beneficiary of someone else’s policy can also be protected. However, it depends on the type of life insurance policy.
Whole life and term life insurance are the two types of insurance policies preferred by people. The term insurance policy pays a set amount to named beneficiary. Since there is no cash value attached, you don’t need to worry about your term policy in case of your bankruptcy. However, a whole life policy is an altogether different game. You end up accumulating cash value over time and can also cash it to get money or take a loan against it. Since it has a monetary value for you, you need to choose whether you can protect it or not. additionally, you can also determine whether you can protect the funds you receive as a beneficiary of the policy or not.
Protecting the Life Insurance Policy
Different states have different provisions for protecting property during bankruptcy. Find out whether life insurance is exempted in your state’s exemption statutes. In case you have the freedom to choose between state and federal exemption, choose one which offers you a better exemption. Many state exemptions cover life insurance policy, however, there are different requirements and you should review it carefully. Since your term policy doesn’t have any value, you end up protecting the cash value of whole life policy.
In case there isn’t any life insurance policy exemption in your state, you can use the wildcard exemption to protect any property you choose. It can also be used with another exemption if life insurance exemption is not enough to protect the policy.
Protecting Life Insurance Proceeds
The date when you received the life insurance funds will be used to determine the exemption status by the court.
- Funds received prior to filing – In this case, the money is treated as a cash asset, irrespective of the fact that it came from life insurance. You can make use of wildcard exemption or any other cash exemption to protect this.
- Right to receive funds just before filing – If you are the beneficiary of someone’s life insurance and he died prior to you filing your bankruptcy case, you have the right to receive the money. However, it will be an asset in your bankruptcy estate, and you need to find ways to protect it. the type of insurance policy also plays a role in it. In Ohio, the proceeds of the group policy are exempt but private policy aren’t.
- Funds received within 180 days of filing – The death date of the insured person is important in this case and not when you received the funds. If the policyholder died a month after you filed the case, the insurance proceeds you will receive will become a part of your bankruptcy estate. This is because the death took place 180 days after your bankruptcy filing. In this case, you need to inform the court of the same and look for appropriate exemptions to protect the money.
There is a difference in Chapter 7 and Chapter 13 bankruptcy too. In the former, you can exempt life insurance asset and the trustee cannot take it. however, in the latter case, you need to pay a non-exempt value to your creditors as per the Chapter 13 repayment plan. To know more about the fate of such assets in different courts, you need to consult lawyers at (888-297-6203).