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Category: Bankruptcy Law
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I declared bankrucpy in 1999 chapter 7. I have a whole life

Customer Question

I declared bankrucpy in 1999 chapter 7. I have a whole life insurance policy worth $10,000.00. The Small Business Administration was the beneficary for SBA loan my partner and I got for our corporation. This company is no longer in business. Closed 10 years ago. I have contacted the SBA and they want to spilt the $10,000.00 50/50. Are they intitle to any of this money? Did my chapter 7 protect or dismiss the SBA from this policy?
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 2 years ago.

cfortunato :

Hi - my name is Chris and I'm a Bankruptcy attorney here to assist you.

cfortunato :

Was the SBA loan included in your Bankruptcy?

cfortunato :

Also, were you personally liable for this loan, or was the corporation only responsible for the loan?

Customer :

Hi Cris

Customer :

No The loan was not included in my bankrupct. The company was shut down and the SBA wrote off the loan.

Customer :

I'm not sure if I was a personally liable for the loan. But they did not do anything to my partner when the company was shut down. I kept this policy only to think I asigned it to my two kids.

Expert:  socrateaser replied 2 years ago.
Hello,

Different contributor here. Please permit me to assist.

A life insurance policy is the property of the bankruptcy estate. However, under TX law, life insurance cash surrender value is exempt. So, even if you did not list the life insurance in your bankruptcy, if you are the sole owner of the policy, and you have the right to surrender it to the insurer for cash, then that's your money.

Now, if the SBA is named as an owner of the policy, then the SBA has a right to a share of the cash value, and this has nothing to do with your discharged debt.

So, in the first case, you can get your money without the SBA's consent. And, if it's the second case, you'll have to split the money.

Note: I'm basing my answer here on very limited info provided by you in this Q&A. I can't be absolutely definitive without reviewing both your policy and the loan agreement (which is out of scope for this forum). This is the best I can do, given the facts available.

Hope this helps.

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Attorney and Real Estate Broker -- Retired (mostly)