Case Conclusion Date:January 1, 2009
Practice Area:Bankruptcy / Chapter 7
Outcome:$1,000,000 Life Insurance Policy Fully Exempted
Description:The proceeds of a one million dollar life insurance policy of a client was claimed exempt and the client's unsecured debt was still fully discharged in a bankruptcy case. The firm represented husband and wife debtors that did not have any assets above the federal exemptions, but both debtors did have term policies naming each other the beneficiary. Tragically, the husband suddenly passed away after the filing of his petition, leaving his wife as the beneficiary of a one million dollar ($1,000,000.00) life insurance policy. The client's bankruptcy schedules were successfully amended, over the trustee's objection, to choose the state exemption scheme, and fully exempt the policy. This allowed the wife to receive a discharge of her debts, which were over $200,000.00, as well as receive the full amount of the life insurance proceeds. It was successfully argued that under the New Jersey state exemption scheme, any proceeds that a debtor receives from a term life policy of a deceased spouse are deemed fully exempted from creditors of both the insured and the beneficiary of the policy. N.J.S.A. 17B:24-6. As a result of the successful argument before the bankruptcy court, the firm's client was able to save her home from foreclosure, wipe out her unsecured debts, and keep her million dollars in insurance proceeds.