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How does an insurance claim affect a Chapter 7 filing?

Pembroke Pines, FL |

I'm considering filing chapter 7 BK because I have over 40k in debt. But I don't know if I should wait to file until after my insurance claim is resolved or if I should file before it's resolved. Some friends have told me that filing beforehand will protect the money I get from the insurance company. After my house suffered major storm damage, my home insurance company tried to cheap out and they offered me less than what I needed to cover my losses. So I hired a licensed public insurance adjuster that was recommended by a friend, and this adjuster has been helping me and guiding me through the claims process. She says I will probably be given anywhere from 15k - 30k. The process should take no longer than 3 more months. What would happen if I were to file chapter 7 before versus after?

Attorney Answers 3

  1. It may be better to wait until you've received the insurance proceeds and used them to fix your house. I strongly suggest you consult with a bankruptcy attorney to assist you with your filing.

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.

  2. When a Florida resident files for bankruptcy relief under Chapter 7 of the Bankruptcy Code, and that person has resided in Florida for more than 2 years, then a certain amount of personal property can be excluded from consideration. Since you own a home and will claim it as homestead protected, you can protect $1,000.00 of personal property.

    If you file for BKC before you receive the funds, the Bankruptcy Trustee can try to take over the claim and get the money to pay your creditors.

    There may be defenses that you would have to that action, but even if there were, you would be paying legal fees to litigate the matter.

    The better course would be to hold off on the bankruptcy, if you can, get the settlement, complete the repairs to the house, and then file.

    However, there are multiple theories for the imposition of a surcharge upon a homestead, and using an asset that is not protected under the law to improve or apply to an asset that is protected could expose your home to such a surcharge, so care should be taken that you not cross that line.

    Good luck to you.

  3. If your claim is not resolved before you file, it will become an asset of our bankruptcy estate. The trustee will take over that claim and will be entitled to that money. You should resolve the claim before filing and you use that money to fix your house (what it was intended for).

    [This communication is intended as general information and not specific legal advice, and this communication does not create an attorney-client relationship.]

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