However, a whole life insurance policy is a different matter. This type of insurance has a cash surrender value, meaning that you may turn in the policy to the insurance company at any time in exchange for payment of the cash surrender value.
Whether a whole life insurance policy is an exempt asset for bankruptcy purposes depends in large part on the amount of cash surrender value associated with the policy. You are permitted to exempt up to $12,625.00 cash value in your whole life insurance policy under the Bankruptcy Code. This exemption must be specifically claimed in the preparation of your bankruptcy petition. You may also, depending on your other assets, have a wildcard exemption of $13,100.00 to apply to the cash surrender value as well.
I did recently have a Chapter 7 bankruptcy case in which my clients had several whole life insurance policies that could not be fully exempted. They decided that the benefit of discharging all of their substantial debts was worth surrendering one of their insurance policies to the bankruptcy trustee, who distributed the cash value to their creditors.