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Will a Chapter 7 bankruptcy wipe out collateral assignments of a life insurance and a disability insurance policies?

Charleston, SC |

I have a 1 Million dollar term life policy and a disability income policy that I had to sign collateral assignments on in order to receive a business loan. I have also signed a blanket lien on all the business assets. My business which is failing currently owes the bank 451,000. The equipment has a value of about 30,000 and other assets of about 10,000. Since I have an injury that may prevent me from being able to work one day and I recently had a health scare in the last month (thank goodness it turned out OK), I am keenly aware of the possibility that I may need these policies in the future. Will bankruptcy discharge or wipe out the assignments? My thoughts are that it would since I would no longer owe anything to the assignee after discharge.

Attorney Answers 2


  1. I think you will need to have an attorney review the term life policy, the disability policy, and the assignments. An attorney needs to clarify what was done, were the assignments allowed by the terms of the policy, and what is the legal nature of the assignments (e.g. liens, or beneficiary).

    The short answer is bankruptcy probably won't eliminate the assignments. Assuming the assignments are in the way of enforceable liens, bankruptcy does not remove liens. However, there are number of variables and issues raised by your question that cannot be addressed here. You need an attorney to sit down and review the documents.


  2. Generally ALL DEBTS are dischargeable in bankruptcy unless they fall within one of the exceptions. You seem to really be asking if somehow you can change a contract re an assignment. Your contracts wont be changed..but will be discharged. If you are trying to ask how it affects that specific asset, then find a local experienced bankruptcy attorney who can spend 1/2 hr going through both the contracts you bring them along with answers to questions they will have for you and then you can see any options you have and the effect of filing. Good luck.

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