Bankruptcy and Life Insurance Proceeds
The law does show a considerable amount of respect when it comes to life insurance. Life insurance proceeds may be considered property of the bankruptcy estate depending on how you are entitled to them. There are exemptions that may help protect proceeds, but it is important to disclose details of an insurance payout to your attorney or trustee so that protection options are reviewed in detail.
If you receive insurance proceeds before your petition was filed or within 6 months after your chapter 7 bankruptcy case has begun, by law you are entitled to the proceeds received. There are state and federal exemptions that may protect your proceeds, especially if you are the beneficiary of an insurance policy. Some states may not offer federal exemptions if the exemptions are set at the state level. It is important to review state and federal exemptions for your state since each may vary. Meaning, one exemption may offer more protection than the other.
In order for proceeds to qualify for protection under exemptions the proceeds may be used to support the well being of yourself and those who are considered your dependents. Basically, the proceeds paid from the policy would be from a person who considered you as a dependent. Another exemption that may be utilized in this situation includes the wildcard exemption. This may offer additional protection for proceeds not covered under state or federal exemptions.
Have Any Questions About Life Insurance Proceeds and Bankruptcy?
Reporting your proceeds upon receipt is important during bankruptcy. Sanctions by the court may be implemented if you fail to disclose information. Your case could result in dismissal without discharge of debts. Questions and concerns should be reviewed with a qualified bankruptcy attorney. If you would like to schedule a free consultation, feel free to contact us today.