When you file bankruptcy, you have to list all of your assets, i.e. everything you own. However, not everything is obvious as an asset and can be missed if you are not careful. If it is missed and not properly exempted, you could end up losing it! One example is a life insurance policy. But that's only important if you die, right, and you're alive. Wrong!
Whole Life Policies Have Value
Whole life policies gain value over time, and this value can amount to a serious chunk of change. This is called a Cash Surrender Value (CSV), and you can either take it outright or borrow against it. You can exempt it and keep it up to a certain value, but if it is not listed and properly exempted, the trustee can take it!
But What If It's Just Term Life; There Is No Value!
That is true. Term life policies do not have a cash surrender value, so there is nothing for the trustee to take (as long as you are alive). But what if you die shortly after you file the bankruptcy? If the policy is not properly listed and exempted, it could also be lost to the trustee!
This is not something you want to happen! This would be especially tragic, since the exemption for the life insurance contract itself does not have a maximum, like the one for the CSV.
If you fail to exempt the policy contract itself, there is another option. Where a spouse or other dependent of the debtor needs the insurance proceeds for their support, there is an exemption for that too, but is capped at what is "reasonable and necessary," which can be a moving target and very fact sensitive. The trustee could also object, and you could face a fight over what is "reasonable and necessary."
Another Reason to Get a Lawyer
This is yet another reason to get a lawyer to handle your bankruptcy, rather than do it yourself. Not all assets are obvious, and you want to make sure you do not miss anything.
If you live in southern New Jersey and are thinking about filing bankruptcy, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment to talk about your options.
If you have more questions about bankruptcy, you can download my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey.