Life Insurance Funds & Bankruptcy: What You Need To Know
Filing for bankruptcy is a significant decision, and you might be wondering if you can keep insurance proceeds after filing for a Chapter 7 bankruptcy. The answer will depend on a variety of factors, so always consult with an experienced Gilbert bankruptcy law firm before filing. Why you received the insurance money, where you live, and when you collected the money will be taken into consideration, along with other factors.
In Arizona, proceeds from accident, employment, disability, and life insurance are generally exempted from the bankruptcy process when the filer meets certain qualifications.
What Are Bankruptcy Exemptions?
When you file for Gilbert Chapter 7 bankruptcy, all of your property and possessions can potentially be considered part of the bankruptcy estate. However, that doesn’t mean that you will lose all of your possessions and end up homeless. The goal of bankruptcy is to give individuals a fresh start and a solid financial future.
For this reason, each state has its exemption laws protecting specified assets from being liquidated to pay for your debts. Many people can exempt all of their property in a Chapter 7 bankruptcy, but not necessarily, so be sure to consult with your Gilbert bankruptcy lawyer about your situation. You may be able to keep your primary home and vehicle that provides transportation to work or school. But in most cases, you won’t be able to keep nonessential property, such as a vacation home, boat, collectible car, secondary watch, and other similar possessions.
Many assets, such as some types of retirement accounts and your children’s bank accounts, are protected from bankruptcy proceedings. However, it’s critically important that you do not transfer funds into these accounts in an effort to prevent them from being used to pay for your debts. All of your accounts will be carefully examined. Money that was transferred right before you filed may be considered fraudulent and be returned to its original account. You are also at risk of having your bankruptcy petition denied.
Insurance proceeds are considered an asset and are subject to their own regulations.
Accident Insurance Proceeds & Chapter 7 Bankruptcy
If you receive insurance money as the result of an accident or personal injury when the accident happened and whether you qualify for a bankruptcy exemption will be considered. In many states, insurance proceeds are considered to be part of the bankruptcy estate and subject to liquidation. Some states offer a “wildcard” exemption, which enables individuals to protect one asset up to a certain amount. However, Arizona has its own generous regulations regarding exemptions and does not offer wildcard exemptions.
In Arizona, if the accident or injury took place after you filed for Gilbert Chapter 7 bankruptcy, you’ll be able to keep the insurance proceeds because they won’t be part of the estate, and exemption laws won’t apply.
If you are injured in an accident that happened before you filed for Chapter 7 bankruptcy, your insurance proceeds may be exempt from liquidation through Arizona’s exemption laws, which include insurance proceeds. The date of the accident, not when you actually received the money, is what matters in this situation. You must have lived in Arizona for at least two years before filing for bankruptcy in order to qualify for Arizona bankruptcy exemptions. If you have recently moved from another state, you may be subject to the bankruptcy laws of that state.
Life Insurance Proceeds & Chapter 13 Bankruptcy
Life insurance proceeds are also exempted from the bankruptcy estate according to Arizona statutes in many cases. Like personal injury proceeds, the date of the policy will be taken into consideration. Only certain people can be the beneficiary of the policy if it is going to be exempted.
If you received the life insurance payout at least two years before filing for bankruptcy, the cash value of the policy is exempt from bankruptcy proceedings. The beneficiary must be a surviving spouse, child, parent, brother, sister, or dependent family member of the debtor in order to qualify for an exemption and be protected from liquidation.
What About Other Types Of Insurance?
Arizona protects accident, life, disability, and employer insurance proceeds from bankruptcy with certain conditions. Because these conditions can be complicated and timing may be crucial, discuss the situation carefully with your Gilbert bankruptcy lawyer before you choose to file. The timing of your filing may also matter for other reasons, so be sure to ask your attorney’s advice about when you should file in order to protect as many of your assets as possible.
It’s crucial that any claim to insurance proceeds is accurately disclosed in your bankruptcy schedules. Failure to disclose this information could result in a delay or denial of your bankruptcy petition.
In some cases, if the insurance settlement has not been reached when you file Chapter 7 bankruptcy, your bankruptcy trustee may take over handling any pending litigation. This will likely happen only when the insurance proceeds are not exempted from the bankruptcy estate.
Court Approval of Settlement
If you have pending insurance action and have not reached a settlement at the time of your bankruptcy filing, the court may need to approve any settlement that is reached to make sure that it is being made in good faith and in the best interest of your estate.
Get Advice From a Trusted Bankruptcy Lawyer In Arizona
There are many factors to consider when filing for bankruptcy, and the attorneys at Gilbert Bankruptcy Lawyers are ready to help guide you through the process. We will carefully examine your situation to make personalized recommendations and tailored approaches for each individual. Schedule your confidential, free case review with us today!
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