You may wonder whether you will lose your life insurance policy if you file for Chapter 7 or Chapter 13 bankruptcy. This depends on the kind of life insurance and bankruptcy exemptions you have.
Life insurance comes in two forms: term life and whole life. Whole life insurance policies have a cash surrender value. This means that a bankruptcy trustee can demand that the amount of the value be surrendered by the life insurance company to be distributed by the bankruptcy trustee to your creditors. Term life policies do not have a cash surrender value and are payable only when you die.
On our bankruptcy questionnaire, there is a place for disclosing life insurance policies. The information that you provide to me will then be inserted into your bankruptcy petition. It is critical that this information be accurate, as to the type of insurance and any cash value.
You can choose the Federal or state bankruptcy exemptions. Under the Federal, life insurance proceeds are exempt if they have not matured. You are allowed to exempt up to $13,400 in the cash value of your policy. Depending on the value of your other exemptions, you may also have a “wildcard” exemption of $12,575.00 to apply to the cash value.
The New Jersey state exemption protects life insurance proceeds only if the policy prohibits proceeds from being used to satisfy the beneficiary’s creditors. This exemption is significant as it is unlimited in amount.
We are happy to review your life insurance policy information as a part of evaluating and preparing your case for bankruptcy.
Call me today for a free initial consultation.