Filing BK...Life Ins Loan

Best to ask your attorney.

 

Whose money did you borrow?

 

Hi Mike,

In traditional Life Ins. policies, where cash values build up inside the contract, there are mechanisms allowing you to borrow this money.

If it's not repaid, true, it gets deducted from the payout if the insured dies. But that's not the only problem. In fact, it's not even the worst problem.


Each year the interest charged on the loan is ALSO added to the outstanding loan balance and deducted from, not only the [ultimate] pay out, but also the cash value. This depletes the cash value until the day arrives where the cash value is non existent, and the policy collapses internally. In other words it's like a cancer that eats it up from the inside, absent it's repayment. So to say it gets deducted "in the end" isn't usually accurate, because the policy [probably] won't last that long.

Industry-wide Persistency Ratios on these types of policies are UNDER 3% in the 61st month.


Life ins. assets are exempt from BK attachment.

So yes definitely you should seek to include the liability (which is to yourself, as Brownie pointed out in his unique way ).

The BK court should factor this into the math formulas they use to determine what you can pay (in the case of a BK13) or what you may keep (in the case of a BK7).

AFTER you are either confirmed or discharged, and providing you're in reasonably good health, go get the "new" kind of Life Ins. Buy term and invest the difference, in a tax deferred/deductible savings function. Like an IRA.



.

 

Here's a naughty little trick, I probably shouldn't even tell you about.

Prior to the filing of a BK13 I have placed large premium life policies in force. Since this expendature is exempt the premium is factored into [deducted from] what the client can pay, because it's a "necessary living expense".

Once confirmed, we drop the policy and recapture the money for other expenses.

SHHHHH - Don't tell any one I said that.



.