Skip to main content

What Happens to Your Life Insurance in Bankruptcy?

Bankruptcy is being considered by millions of Americans during these tough economic times, and many are wondering what will happen to their life insurance proceeds if they choose to file.  Depending on your circumstances, your life insurance proceeds could be safe from bankruptcy laws, but there are exceptions that do apply and you should definitely talk to a professional about how your unique scenario will impact your life insurance policy.

You will first need to determine what type of bankruptcy you will be filing.  There are three main types that the general public tend to turn to including Chapter 7, also known as liquidation, Chapter 13, the wage-earner plan, and Chapter 11 which is used by businesses.  Professionals can steer you towards the appropriate filing option, but do keep in mind your life insurance policy could be affected different based on what you choose.  Some or all of your life insurance proceeds could end up going through the court for evaluation.

The other thing to recognize is that bankruptcy laws vary from state to state so it's important you talk to a professional who knows the ins and outs of your particular state.  You'd be surprised how different the laws can be and you don't want to go into the situation with wrong information.  That will only delay proceedings and could end up disqualifying you from filing at all.  You want to make sure you will be able to purchase a life insurance policy after the filing takes place if need be.  Some consider this to be one of the most important times to carry life insurance protection.  Take your time to make this very important financial decision.

Learn More