Bankruptcy Law Questions? Ask a Bankruptcy Lawyer.
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To avoid having to include the life insurance loan as income for tax purposes, the individual would have to have paid back the loan.
This is not the type of loan that gets discharged in a Bankruptcy, as there is no creditor involved.
The reason is when someone "borrows" money against their life insurance policy, they are actually taking their own money - money that already belongs to them.
So this type of loan is not a debt, and since only debts can
be discharged, this type of loan cannot be discharged.
So the bankruptcy has no effect on the loan being treated as a deeme ddistribution post-bankruptcy?
Yes - that is correct.