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Bankruptcy Court Makes Chapter 7 Debtor Turnover Policies Used to Pay for Father’s Burial

Bankruptcy Court Makes Chapter 7 Debtor Turnover Policies Used to Pay for Father’s Burial

Abstract:

When planning for your estate, Chapter 7 Bankruptcy, and judgment lien creditors are often overlooked. While you may not have any of these concerns, you cannot guarantee that your heirs will not. The way you structure your estate is key to whether your family will be able to take care of your concerns after death. My article discusses bankruptcy and its conflict with probate concerns.

Trustee Forces Debtor to Turn Over Proceeds of Life Insurance Policy:

Recently, the U.S. Bankruptcy Court for the Western District of Michigan forced a debtor to turn over the proceeds of a life insurance policy that was used by the debtor to pay for the burial expenses of her father. In re Hodge, Case No. HK 12-08805 (Bankr. W.D. Mich., Mar. 14, 2014).

In the Hodge case, the Chapter 7 Trustee filed a motion to compel turnover of non-exempt assets, including $7,208.84 of life insurance on the debtor’s father’s life. The debtor’s father had died just two days after she filed for Chapter 7 bankruptcy. The court ruled that the debtor had to turn over the proceeds of the life insurance policy. The court ruled this way because they rejected the debtor’s argument that she was not the beneficiary, but merely an owner of the policy (the key here is that an owner cannot be stripped of the property, while a beneficiary may be stripped of the benefit in bankruptcy).

 

Why Would the Court Rule this Way?

§541(a)(5) of the Bankruptcy Code states that property of the estate includes any interest in life insurance policies or other forms of insurance received as a beneficiary within 180 days of filing bankruptcy.

The debtor in Hodge admitted to the fact that her father was the owner of the policy. Therefore, the court followed 11 U.S.C. 541(a)(5) and ordered the proceeds of the policy be remitted to the trustee.

 

What Can You Do to Protect Your Loved Ones From A Bankruptcy Trustee?

The best thing you can do for your loved ones is have your insurance policy, procured for burial expenses, assigned to your estate and not to a specific person. This way, under Michigan’s EPIC probate code, your estate will always be able to use that money first for burial expenses. Assigning it to a specific person will allow the bankruptcy trustee or other creditors to have preference when attaching to your loved one’s estate.

 

Conclusion:

Planning for you estate is critical in order to protect your loved ones. Also, bankruptcy and the bankruptcy code are complicated. That is why you want experienced counsel at your side. Before you file, contact our legal team in Grand Rapids at 616-698-0000 or www.clickforhoward.com

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