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Will the bankruptcy take the insurance money from me?

I am thinking of going bankrupt. My husband has health problems and can’t work like he used to on his construction business. We owe a lot of money and will never be able to pay it all. I also put in a claim for Critical Insurance for my husband’s heart attack and I am wondering if I receive it, will the bankruptcy take the insurance money from me. We wanted to build a house with the claim, so at least we can survive if he gets worse.

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One Response to “Will the bankruptcy take the insurance money from me?”

Doug Stuive, CA | Trustee | CIRP said...

Based on your questions it appears that the critical illness policy and claim are for your husband. If that is the case then any funds received as a result of this claim would only be subject to seizure by the Trustee if your husband declares bankruptcy. If your husband is not responsible for any of the debts that you have incurred then he does not have to file an assignment in bankruptcy and he could use the funds received as intended to build a house that meets his medical needs. In this situation if you file for personal bankruptcy your husband’s funds will not form part of the bankruptcy estate.

If you are in fact the beneficiary of the critical illness policy, then these funds would form part of the bankruptcy estate. The funds would be used to first pay out your creditors and if there were excess funds you would receive the left over balance for your own use. Since the funds would be vulnerable in a bankruptcy filing if they are payable to you, you may wish to defer making a decision about filing for bankruptcy until after your claim has been finalized with your insurance company.

If your husband is responsible for some or all of the debts you may be able to file a consumer proposal. The creditors would vote on whether or not to accept the consumer proposal and they would need to be made aware that there may be funds available from a Critical Illness claim in the future. If they accept your consumer proposal then this would be a legally binding contract. That would mean you would not have to surrender the funds from the critical illness claim. It would be recommended though that you use the funds to pay out the balance owing on your consumer proposal (s) as this would just ensure your proposals are successful.