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Chapter 7 Debtor Required to Turnover Proceeds of Life Insurance Policy Used to Pay for Father's Burial

A recent decision in the U.S. Bankruptcy Court for the Western District of Michigan[1] granted a Motion filed by the Chapter 7 Trustee requesting turnover by the debtor of proceeds of a life insurance policy that were used by the debtor to pay the burial expenses of her father.

In the case, the Chapter 7 Trustee filed a Motion to Compel Turnover of Non-Exempt Assets seeking $9,698.90 from the debtor, including non-exempt cash, jewelry, a whole life insurance policy, and the proceeds from an insurance policy on her father's life. The debtor disputed that she was required to turn over the $7,208.84 in life insurance on her father's life, who died two days after her bankruptcy filing. The debtor argued that she used the proceeds to pay for her father's burial, and that she was not a beneficiary of the policy, but rather the owner.

When requesting turnover of the life insurance proceeds, the Chapter 7 Trustee relied upon Section 541(a)(5) of the Bankruptcy Code, which provides that property of the estate includes an interest in a life insurance policy received as a beneficiary within 180 days of filing bankruptcy.  

The Court rejected the debtor’s argument that she was the owner versus a beneficiary given she did not list the life insurance policy in Schedule B and because it was admitted at oral argument that the debtor’s father was the owner of the policy. As a result, the Court determined that the life insurance policy fell squarely within 11 U.S.C. 541(a)(5).

Despite the counter arguments made by the debtor, the Court ruled in favor of the Chapter 7 Trustee and granted the Motion based on the language of Section 541(a)(5), which clearly includes the insurance proceeds in the bankruptcy estate.

The ruling was dictated by the clear language of the Bankruptcy Code, and as explained by the Court, this decision "simply honors the fundamental principal that one person generally may not use another's property without permission. Wittingly or unwittingly, the debtor did so in this case, and she must account to the estate and her creditors." 

 [1] In re Hodge, Case No. HK 12-08805 (Bankr. W.D. Mich., Mar. 14, 2014).

Categories: Chapter 7, Western District of Michigan

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 concentrates her practice in the areas of Bankruptcy, Finance, Collections, Real Estate, and Commercial Litigation. In the bankruptcy area she represents creditors and Chapter 7 Trustees in all aspects of bankruptcy. Patricia also represents small and mid-sized businesses to large corporations in multi-faceted litigation matters in state and federal court. Her work with financial institutions includes collections, loan workouts, foreclosures, receiverships and various complex banking and finance issues. 

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