Bankruptcy

Man Dies Hours After Filing Joint Bankruptcy; Widow Loses Life Insurance Benefits

By Jonathan Alper

I received a call from an attorney from his car on the way back from a creditor meeting with the bankruptcy trustee. The attorneys clients, husband and wife, filed a joint bankruptcy petition. The petition was filed in the morning. The same afternoon, following the filing, the husband passed away. The husband had a life insurance policy which named the wife as the beneficiary. The bankruptcy trustee told the surviving spouse at the creditors meeting that she must hand over to the trustee all the death benefit from her husband?s insurance. The attorney wanted to know if the trustee could seize the wife?s insurance proceeds.

The answer is yes; the trustee can grab all the insurance. The general bankruptcy rule is that your non-exempt bankruptcy estate includes assets you own prior to filing your bankruptcy petition. There are exceptions. Section 541 of the Bankruptcy Code lists certain assets that become part of the bankruptcy estate even though the debtor acquires the assets after filing. These include a debtor?s interest in a life insurance policy or other death benefit.

It?s a harsh result in this case. The widow debtor was probably counting on the life insurance to get a fresh start out of bankruptcy. Even if the husband died prior to the filing the trustee would still get the wife?s insurance money. The trustee is correct in pursuing the asset because the trustee?s duty is to the couple?s creditors regardless of sympathy for the wife.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Full post as published by Florida Bankruptcy Law on July 15, 2009 (boomark / email).