Legal Question in Bankruptcy in New York

Re: Whole Life Insurance

Generally - no, the cash value or surrender value of whole life insurance in New York is NOT exempt. However, New York law can get a little complicated in this area. If you have a life insurance policy on your own life naming another as a beneficiary, then under New York law the beneficiary is protected from your creditors. The beneficiary has the right to the policy "proceeds and avails" - including cash or surrender value. Under this, you may be able to argue that cash value is exempt. However, the trustee may argue (correctly) that any cash value to YOU is not exempt. If you cash it in now, you may be able to protect up to $2500 as your cash or bank account exemption. Call my office at (212) 745-1373 if you need help filing.

Re: Whole Life Insurance

Ch7 is never fun. But you are showing excellent judgment in palnning ahead.

The answer to your question is this: is this insurance a savings product or an insurance product? If you can 'cash it in' for a high percentage of the face amount, then it is more of a savings product than an insurance product. If the cash value is very small compared to your 'equity' in the policy, then it may not be included in your bankruptcy estate. It should still be listed, but as an exempt property.

The best way to handle this is to 'waive' or 'assign' the cash value of the policy. Draft the policy so that you personally may not cash it in. Make the cash out payable to your children. That will definitely take it out of your bankruptcy estate. the best way to do this is with a trust. That is something I can help you with (as well as the CH7 petition).

This is largely a 'drafting problem' which can be solved.

You are welcome to a consultation for no fee at my offices at 42 west 44th street, NY,NY. Please call for an appointment first (646) 591-5786.