February 15, 2016
When filing a bankruptcy proceeding you are allowed to protect a certain amount of personal property. Bankruptcy attorneys refer to protected personal property as “allowed exemptions.” One of the categories of personal property is life insurance. Life insurance comes in many forms. However, for purposes of bankruptcy we typically categorize life insurance into term life insurance or whole life insurance.
Term life insurance has no cash value. It simply provides cash payment upon death. What this means is the policy or the insurance contract has no cash value while you are living. The term life insurance policy should be disclosed on your bankruptcy schedules, however, to the extent that it has no cash value a trustee has no ability to liquidate the asset. In other words, you may continue to pay the term life insurance policy and the beneficiaries are allowed to keep any of the proceeds despite your bankruptcy.