22 Jul Filing Bankruptcy under Chapter 13 – Get Insurance
Before filing a chapter 13 bankruptcy, we need to figure out what you are paying. Clients who have disposable income do have the choice to put their income to uses which are permitted by the Bankruptcy Code. The means test is mechanical but not totally inflexible. If you have a choice of spending your money on life insurance, health insurance, disability insurance or long term care insurance as opposed to, let’s say, paying more to your unsecured creditors, I think the choice is rather obvious.
Recently, a married couple – both in their early 60’s – with a combined family income of $120,000 visited me. They do need to file a chapter 13 bankruptcy because they have a lot of unsecured credit card and medical debt. The principal earner in the family was ill and out of work for close to a year. They want to get their financial affairs in order before they retire. They have pretty good income. But so much of their income would go to pay creditors in chapter 13 because their current monthly income is rather high. There is room in their budget for insurance. And boy do they need it. And under the Bankruptcy Code, it’s ok to buy term insurance. Check out line 22. And health insurance is also deductible – including disability and even long term care insurance. See line 39. So if you can afford it, why not take care of yourself first?
So both husband and wife are going to get life insurance, supplemental health insurance and long term care insurance to protect them. They will still pay a lot of money to their unsecured creditors under chapter 13. The trustee won’t say a peep about this since insurance is a perfectly proper deduction from disposable income.
Moral of the story. You do have to take care of your creditors in chapter 13 bankruptcy. But you really ought to take care of yourself first.
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