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As personal bankruptcy affect your life insurance

By Dawn Reiss, Life Quotes, Inc.

Filing for bankruptcy is usually person the worst nightmare, but when it comes to protecting your assets (including the value of your life insurance ) information are the key.

A life insurance is a valuable property, the creditors could try is, as "acquire an interest the politics of values ​​", but all states and the federal government" have adopted legislation that provides protection measures for the life insurance claims the creditors, "said Glenn E. Stevick, Jr., a professor with The American College.

Here are some basics that you should know when it comes to bankruptcy and how it affects your life insurance.

First, more people file for bankruptcy, as you might think. With the recent economic downturn and mounting Calculations, the current bankruptcy declaration is a 5-year high, according to recent data with automated access to court electronic records (Aacer) published. What is more, reports the American Journal of Medicine that more than 1.5 million bankruptcy last year, 60 percent of visitors a direct result of medical bills.

The American Journal of Medicine, for example, found that 1 have 25 people in the Bay Area filed for bankruptcy last year, says bankruptcy attorney Jeena Cho San Francisco-based JC Law Group.

"It's like the dirty little secret," says Cho. "Two things that we do not talk, death and money. When people talk about their financial problems start, they find there are many people in the same boat. "

There are two types of bankruptcy for Individuals: Chapter 7 and Chapter 13

Chapter 13 Here you can keep your assets and there is no risk for loss of property, but you must some of the debt be repaid over a three to five years. If your cash value life insurance is worth more than the exception in your state, then consider filing Chapter 13 to protect your assets recommends Cho.

If you pass a means test and can file a Chapter 7 you will need your property to liquidated and its assets, which generally lasts four months. It also means your life insurance could be affected.

Cho says one of the worst things anyone can do is start to liquidate their assets and borrowing money from their life insurance and pension funds, which are almost always protected in bankruptcy.

"The People start, which they have little money to see if they could get out of debt re-payment by it, "says Cho." I see people whose drain $ 40 000 Pension Fund for $ 100,000 credit card debt. They start selling their cars and houses without an exit strategy. The game plan is as much as possible to keep. "

Also, make sure you open everything, including the current, accurate monetary value of your life insurance policy. Some people do not know, "because they are afraid and are eventually lose it because it's true value had failed, "says David Leibowitz, a bankruptcy lawyer Lakelaw in Chicago, Ill.

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Under state and federal and bankruptcy law, an individual choose to filing for bankruptcy exemptions under federal or state law, but not both. Explains Stevick, 34 states such as Illinois, New York, California and Florida have the federal law "of decision" and have their own state confiscated protection.

Sixteen "election states - including Texas - Allow borrowers to choose between federal and state exemptions. By province exceptions, you can protect up to $ 10,775 from a life insurance cash value (for Couples doubled). Also in some states of the unused portion of homestead exemptions (real and personal property) can be used for other property, including the present value of a life insurance policy. Some states require to be the policy in force, 1.59 years for protection under a state exemption to prevent the life insurance as a shelter in bankruptcy planning.

Register To qualify for bankruptcy under state protection, you need to be considered a resident and live in a state for 24 months.

In Illinois is life insurance for creditors to the extent that unless it is necessary to have a dependent (a spouse and dependent Children), but the judicial interpretation support is up to your bankruptcy judge.

If you file your bankruptcy, you typically include a timetable or a list of your exempt property, which may include your life insurance.

Ron Caruthers, a financial planner that helps individuals pay for college with over-funded Life insurance, says Florida, the debtor-friendly state is bankrupt because it has a strong homestead exemption. Another debtor-friendly state of Texas is the large exemptions for livestock and farms possible.

"It's why OJ Simpson took all his assets and moved to Florida and put it in of life insurance and a home as they do not cooperate, if he touch bankrupt, "says Caruthers.

At the opposite end of the spectrum is Arizona. Caruthers says Arizona is the creditor-friendly state.

Note is that all 50 states differently when it comes to bankruptcy are protective mechanisms, so it's best with a financial planner or contact bankruptcy attorney in this state to learn more.

Here are some suggestions for, what to look out before you Bankruptcy.

Death benefit: how much of the proceeds at death are protected from creditors (some another state a dollar amount such as $ 5,000 or $ 10,000 States allow the entire amount.)

It is important to consider how much is protected by your life insurance. For example, in California unmatured policy is exempt up to $ 11,475 for homeowners filing jointly or separately under code 704 (c) Non-homeowners file under 703.140 (b), which allows for up to $ 11,800. Share your life insurance exceeds $ 11,475 as You can use the wild card exemption of $ 23,250, partly or entirely on the policy as may be applied.

Look for the liberation Statistics if you do business, because each state is different -. Pay particular attention to differences in state and federal laws and which parties are protected by the policy owner, tenant, etc.

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