Life Insurance and Bankruptsy

Life insurance is generally not considered an asset in bankruptcy proceedings, as it is considered a type of personal property that is exempt from being seized by creditors. However, it is important to note that the specific laws regarding exemptions and bankruptcy can vary by state. In a Chapter 7 bankruptcy, the debtor's non-exempt assets are sold by the bankruptcy trustee to pay off creditors, while in a Chapter 13 bankruptcy, the debtor agrees to a repayment plan to pay off debts over time. In both cases, the debtor is typically allowed to keep certain types of property that are considered exempt from being sold or seized, such as a primary residence, personal property, and retirement accounts. Life insurance policies are typically exempt assets in bankruptcy, meaning that they cannot be taken by creditors to pay off debts. However, it is important to note that the specific rules regarding exemptions and bankruptcy can vary by state, so it is important to consult with a bankruptcy attorney for guidance on how to protect your assets. It is also worth noting that if you file for bankruptcy, you may need to surrender any life insurance policies that have a cash surrender value, as these may be considered assets that can be used to pay off your creditors. However, policies that do not have a cash surrender value, such as term life insurance, are typically not affected by bankruptcy proceedings.