When you initiate a bankruptcy proceeding, your appointed Bankruptcy Trustee will ask you for a copy of your life insurance policy. This is not an invasion of your privacy, but rather a necessary step in the process. They want to ascertain whether it is a term insurance policy or a whole life policy that might possess a cash value. The trustee’s role is to determine if this cash value is part of your insolvent estate without compromising the rights of the beneficiary of your life insurance policy.
Should you nominate your “estate” as the beneficiary, the trustee would normally extract the cash value or propose an option for you to reimburse the amount the trustee would have obtained if they had accessed the cash value. Rest assured, your trustee will not invalidate your life insurance policy. With your cooperation, the insurance provider and your life insurance broker may remain unaware of your bankruptcy filing.
Another aspect of concern for your trustee revolves around the situation if you were to pass away while your bankruptcy is still not discharged and your estate has been designated as the insurance policy beneficiary. In such a case, the policy proceeds would be directed towards your trustee. They would first allocate funds for your funeral and testamentary expenses, following which, the balance would be distributed among your creditors, post the deduction of the trustee’s fees and charges. Any residual funds would be transferred to the executor of your estate.
Contact Rumanek & Company Ltd. for more information on bankruptcy and debt solutions. Or please fill out the free bankruptcy evaluation form. To learn more please visit our YouTube Channel. Rumanek & Company have been helping individuals and families overcome debt for more than 25 years.