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Roger
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 31770
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by Thompson-Reuters
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I am an attorney with a limited bankruptcy practice. I want to confirm what I found befor

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I am an attorney with a limited bankruptcy practice. I want to confirm what I found before I advise my client.

Kathy and her husband came to see me for a bankruptcy. with 200k in debt and no assets it made sense.
Husband had life insurance with no cash value, but 90k in benifits.
before they brought their information back to me the husband died.

Can Kathy disclaim the insurance proceeds from her husband? If so the children would get the money and they will take care of Kathy.

Will the disclaimer be considered a transfer under the Code?

I have found a few cases that have allowed a disclaimer under a will. I assume she's ok to disclaim.

Hi - my name is XXXXX XXXXX I'm a Bankruptcy litigation attorney. Thanks for your question.

 

Section 541(a)(5) of the Bankruptcy Code says property of the bankruptcy estate includes:

 

"Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date -

(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agreement with the debtor's spouse, or of an interlocutory or final divorce decree; or
(C) as a beneficiary of a life insurance policy or of a death benefit plan."

 

This means that if someone dies within 6 months after a debtor files bankruptcy and that debtor inherits anything or receives life insurance proceeds, the inheritance or life insurance proceeds are part of your bankruptcy estate and could be used to pay the claims of your creditors. In other words, once bankruptcy is filed, the right to disclaim belongs to the bankruptcy trustee - - not the debtor. Therefore, the bankruptcy debtor cannot disclaim within 180 days after the petition has been filed, because the inheritance (or right to disclaim) is property of the bankruptcy estate.

 

It is possible to disclaim an inheritance BEFORE the person dies, but once the person passes away, there's no legal way to retroactively disclaim the inheritance.

 

 

Hi -

I hope the above response answered your question, but if you need something else, please let me know. Thanks.

Customer: replied 4 years ago.

Thank you for your prompt response. But I think I failed to communicate my question appropriately. The issue I have is what if she disclaims the life insurance proceeds, then some. Of time say 30 or 60 days later files for bankruptcy? Is her potential to receive the life insurance proceeds part of the bankruptcy estate. By the time she files the proceeds would have already been paid Distributed to her children directly from the insurance company.

Thanks for the response.

The 180 day period must still be honored. Thus, because she technically became entitled to the insurance proceeds at the time of his death, she CANNOT disclaim the proceeds at this point because any inheritance within 180 of the filing would belong to the estate.

Thus, in order to have a shot at this, she would have to disclaim the proceeds and then wait at least 180 days before filing.

One clarification with the regarding the statement below......

 

The 180 day period must still be honored. Thus, because she technically became entitled to the insurance proceeds at the time of his death, she CANNOT disclaim the proceeds at this point because any inheritance within 180 of the filing would belong to the bankruptcy estate.

 

Thus, the trustee would have dominion over the proceeds, and not the debtor.

Roger and other Bankruptcy Law Specialists are ready to help you
Please let me know if you have any additional questions or issues with this matter. Thanks!