Receiving Life Insurance Benefits After Filing Bankruptcy
When Nevadans receive life insurance proceeds before or after they have filed for bankruptcy, they might be able to claim an exemption for them depending on several factors. Some of the important factors include when they received the life insurance proceeds and whether they might be able to claim a federal or state exemption. If a specific exemption isn’t available, debtors might be able to protect life insurance proceeds by using a wild card exemption under federal or state law.
The 180-Day Rule
A 180-day rule applies to life insurance proceeds that people receive when they file for bankruptcy. In general, life insurance proceeds that people have received more than 180 days before or after they file for bankruptcy protection are exempt from their bankruptcy estates. If a debtor receives life insurance proceeds within 180 days of when they have filed for bankruptcy, the life insurance money is generally considered to be a part of the bankruptcy estate and can be used by the trustee to repay the creditors. This is true even if a debtor has already received a discharge and the bankruptcy estate has been closed if he or she receives the life insurance money within 180 days of the filing date. However, an exemption might be available.
Some states allow debtors to choose between the federal and state bankruptcy exemptions. However, Nevada has opted out of the federal bankruptcy exemptions, which means that debtors in the state must use Nevada’s bankruptcy exemptions. When an asset is exempt, it does not become a part of the bankruptcy estate and can remain the property of the petitioner.
Fortunately, Nevada has a generous exemption for third-party beneficiaries of life insurance policies. Under the law, life insurance proceeds that are paid to third-party beneficiaries other than the insureds are exempt from creditor claims for the repayment of debts. People are also able to exempt their own life insurance policies or proceeds if the annual premiums do not exceed $1,000. Finally, Nevada allows people to exempt group life insurance proceeds in their entirety.
When people receive life insurance proceeds within 180 days of when they file for bankruptcy, it is important that they disclose them. Failing to properly disclose assets in bankruptcy might result in the bankruptcy case getting dismissed.