Sometimes life's tragedies come in pairs. Financial distress leads to bankruptcy. But what happens if one of the debtors in the bankruptcy dies after the case is filed? You might not think that that can happen, but it can. When it does, it just brings to mind more forcefully the need to protect life insurance as an asset in your case.

Protecting Life Insurance for a Death After Filing

Life insurance, whether it is term or whole life, is an important asset that should be fully listed and exempted in your bankruptcy. Failure to do so can lead to problems in your case. An issue such as this is one of the reasons why I do not recommend that you handle your bankruptcy yourself.

A chapter 7 bankruptcy will continue after the death of the debtor, so the insurance proceeds can present a key issue. Although there is a choice of whether to continue a chapter 13 after the death of a debtor, if the best course is to continue, then you still need to deal with the insurance.

What If There is a Death Before Filing?

Life insurance issues can also crop up prior to filing. Let's say a married couple is in financial difficulty and really needs to file bankruptcy. They have life insurance, but one of the spouses dies before the bankruptcy can be filed, thus resulting in a payout of a significant amount of money for the surviving spouse.

Naturally, this money is needed for his or her financial support, along with any dependents, like children. Although there is an exemption for insurance proceeds that are "reasonable and necessary for the support of a debtor or a dependent of the debtor," you can still end up in a fight with a bankruptcy trustee over how much that amount is. I had that happen recently on a case.

I Can Help!

If you live in the Gloucester County, New Jersey area and are thinking about bankruptcy, the impact of life insurance policies needs to be considered. Please feel free to call me at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to see if bankruptcy is the right solution for your financial problems.

If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.
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