Archive for November, 2008

Question: What happens if an undischarged bankrupt receives a life insurance payout because she is the sole beneficiary on deceased spouses policy? Also, if the bankrupt “is” responsible to pay the creditors, which debts are involved when the bankrupt had her own personal debts along with “joint debts” with the deceased. Is the bankrupt responsible to pay back the full joint dept or just her half. In the bankruptcy, the joint debts were included in full value. I do know that when life insurance is left to a named beneficiary, that all debts owned by the policy owner are protected from the creditors which makes it confusing in this case. Bye the way, the deceased never did file for bankruptcy. I appreciate any info you can provide based on the laws here in Ontario Canada. Thank you

Answer: Any assets that a bankrupt person receives while an undischarged bankrupt can be seized by the trustee for the benefit of the creditors. If a bankrupt person receives life insurance proceeds, the trustee can seize the money. The trustee then takes the money and distributes it to the creditors. You state that “when life insurance is left to a named beneficiary, that all debts owned by the policy owner are protected from the creditors which makes it confusing in this case.” This case is not confusing. Once the beneficiary receives the money, it’s cash, and therefore is seizable by the trustee.

As for joint debt, the bankrupt person is liable for 100% of the debt, just as the joint debtor is liable for 100% of the debt; they are not each liable for their half.

On this web site we can only give general answers, and since the facts in each case may be different, we suggest you discuss this with your bankruptcy trustee, or with a bankruptcy lawyer.