Filing for Chapter 7 - Life Insurance Problem

[BeginningAgain]

Hi there,

This is my first time posting here, but I have read sporadically throughout the years. 

I will try to condense this.

I am going through an unwanted divorce (my spouse left, but I didn't/don't want it) we have one child together and he was the breadwinner and I was a SAHM.

Because the divorce is already final we have to file seperately. We went to the lawyers office together recently to sign the papers to file, but ran in to a bit of a snag. 

My father unexpectedly passed away in February and I am the beneficiary of a small life insurance policy of $10,000. When I told the lawyer this at the beginning of all of this he said $5,000 could be exempt but anything other then that would be taken unless we "spent" it on certain things and he gave me a list. However, when we met the day to actually file, he said that would have only applied if I received the money and spent it before I filed, so I must have misunderstood at some point. 

He asked if there was any way for me to hold off on filing until I received the payment, but I have no idea when that will be. It is still in the process of being reviewed and the woman I spoke to said it could be 90 plus days. At that point, the bankruptcy would be discharged if I filed today, but the lawyer said it doesn't matter when I get it, it matters when I became eligble for it. Which doesn't make sense to me because if I became eligible and received the money before filing and spent it on "acceptable" things before I filed wouldn't that be problematic?

Is there any way around this?

I don't want to be shady in any type of way. I am just really struggling. I didn't want the divorce and a month after it became final my dad had a stroke and ended passing away. Nobody was allowed to be with him because of covid and so he laid alone in a hospital bed for weeks. 

He was my only support system and now I need to somehow find a career after being a SAHM that makes enough to take care of me and my daughter and still pay for things related to my fathers passing, so I was going to use his life insurance money to pay for that. 

I hate that we have had to file for bankruptcy and I have no idea how to even start recovering especially when I am literally starting EVERYTHING over.

I apologize for word vomit, I am just overwhelmed. 

Not that this matters but we were with NavyFederal since 2007 and unforntuately their accounts are the ones going through bankruptcy so we switched to USAA. 

I also opened up an account with Coastal Credit Union.

Any tips/suggestions on where to go from here to reestablish myself is greatly appreciated. 

[CH-7-Mission-Accomplished]

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@BeginningAgain wrote:

Hi there,

This is my first time posting here, but I have read sporadically throughout the years. 

I will try to condense this.

I am going through an unwanted divorce (my spouse left, but I didn't/don't want it) we have one child together and he was the breadwinner. I for a variety of reasons.

Because the divorce is already final we have to file seperately. We went to the lawyers office together recently to sign the papers to file, but ran in to a bit of a snag. 

My father unexpectedly passed away in February and I am the beneficiary of a small life insurance policy of $10,000. When I told the lawyer this at the beginning of all of this he said $5,000 could be exempt but anything other then that would be taken unless we "spent" it on certain things and he gave me a list. However, when we met the day to actually file. he said that would have only applied if I received the money and spent it before I filed, so I must have misunderstood at some point. 

He asked if there was any way for me to hold off on filing until I received the payment, but I have no idea when that will be. It is still in the process of being reviewed and the woman I spoke to said it could be 90 plus days. At that point, the bankruptcy would be discharged if I filed today, but the lawyer said it doesn't matter when I get it, it matters when I became eligble for it. Which doesn't make sense to me because if I became eligible and received the money before filing and spent it on "acceptable" things before I filed wouldn't that be problematic?

Is there any way around this?

I don't want to be shady in any type of way. I am just really struggling. I didn't want the divorce and a month after it became final my dad had a stroke and ended passing away. Nobody was allowed to be with him because of covid and so he laid alone in a hospital bed for weeks. 

He was my only support system and now I need to somehow find a career after being a SAHM that makes enough to take care of me and my daughter and still pay for things related to my fathers passing, so I was going to use his life insurance money to pay for that. 

I hate that we have had to file for bankruptcy and I have no idea how to even start recovering especially when I am literally starting EVERYTHING over.

I apologize for word vomit, I am just overwhelmed. 

Not that this matters but we were with NavyFederal since 2007 and unforntuately their accounts are the ones going through bankruptcy so we switched to USAA. 

I also opened up an account with Coastal Credit Union.

Any tips/suggestions on where to go from here to reestablish myself is greatly appreciated. 

---

Please listen to your lawyer and follow her/his advice.   You have hit a bummer of a situation but it's very real.   Had you one the Lotto after filing but prior to discharge, you would have to report that (but then you could pay your bills yourself.).  To not report the money is fraud and it's just not worth it for $5000.

One note about USAA -- they are very "not" friendly to BK's.   They do have some perfectly good secured credit cards, but otherwise they just won't loan to you.   Also if you burn them in a BK, they cut off your online access, even to be able to pay your auto insurance.

Good luck.   You will do fine.   

[BeginningAgain]

Thank you. Sometimes I feel like information I am receiving from him is inconsistent and I don't know what is actually going on. I don't know what I am supposed to be doing or not doing during this time period. 

We aren't bankrupting anything with USAA - will they still give us the boot even if we aren't including them in the bankruptcy? 

[CH-7-Mission-Accomplished]

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@BeginningAgain wrote:

Thank you. Sometimes I feel like information I am receiving from him is inconsistent and I don't know what is actually going on. I don't know what I am supposed to be doing or not doing during this time period. 

We aren't bankrupting anything with USAA - will they still give us the boot even if we aren't including them in the bankruptcy? 

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You will be fine with USAA if you didn't burn them.   No problem.   And they do have secured cards that are automatically approved and they are not a ripoff like sub-prime cards.   It's just that their cards do not graduate so if you get one or two of them,  just use them as a bridge until you can get high quality unsecured cards.   Then close the USAA cards.    Some people think USAA is a credit union, like Navy, but they are not. And they are not BK friendly.    You should investigate State Department FCU.   They have a secured card that graduates and is pretty much automatically approved if you have the deposit.   They are also easy to join.   Good luck.

[BeginningAgain]

You are right - I think I did liken them to NFCU. Interesting to know. I already have a CC with them but it has a zero balance. Are all creditors contacted when you file even if you don't owe them anything?

I think we are eligible to apply for an account with State Employees Credit Union and we opened an account with Coastal Credit Union already. Haven't done anything with them though...

[CH-7-Mission-Accomplished]

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@BeginningAgain wrote:

You are right - I think I did liken them to NFCU. Interesting to know. I already have a CC with them but it has a zero balance. Are all creditors contacted when you file even if you don't owe them anything?

I think we are eligible to apply for an account with State Employees Credit Union and we opened an account with Coastal Credit Union already. Haven't done anything with them though...

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Yes,  your attorney will send a notice to everybody on your credit report.   One reason for this is that most credit card agreements have a clause that says if you default on any other credit card that constitutes a breach of your agreement.    I have one piece of advice that helped me.   It was by chance I did this but it helped me a lot.   I closed out all of the accounts I had for which I owed nothing -- prior to filing.   So when they got the BK notice the account was already closed and there was no damage.   One bummer is that let's say you had a Lowes card issued by Synchrony Bank, and you owed them nothing, but the account was opened when you filed.   They will then list that (zero balance) account as included in bankruptcy and to make matters WORSE they may blacklist you for a year or two because you "included them in bankruptcy," even though you didn't owe them a dime.   Some people hope to keep accounts open that have a zero balance in the hopes of the cards surviving the BK but you may get lucky with like a JC Penney card or something, but the downside far outweighs keeping an account open.

[BeginningAgain]

Oh wow - I literally had no idea. This is what frustrates with me the lawyer. 

Before moving our finances over to USAA from NFCU I asked him if anything would be affected. We are keeping our cars and one of the loans is with USAA and he said it would be fine. Well - I just went to pay our car payment and it wont let me so I emailed him and he said yes they would be notified. 

What in the world. Had I known that I would have switched to a different bank. 

I had no idea that all accounts (including those with zero balances) would be "included" in the BK. 

I paid a lawyer because I knew I would need one and have no idea what I am doing but it feels like for every 10 questions I ask he only answers 1 and I feel lost in this whole process. 

I am renting and am not behind and will not be falling behind - does this mean my landlord is going to be notified as well? There is a clause in my lease that says they reserve the right to immediately terminate the lease if we file for bankruptcy. Now I am worried. 

[CH-7-Mission-Accomplished]

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@BeginningAgain wrote:

Oh wow - I literally had no idea. This is what frustrates with me the lawyer. 

Before moving our finances over to USAA from NFCU I asked him if anything would be affected. We are keeping our cars and one of the loans is with USAA and he said it would be fine. Well - I just went to pay our car payment and it wont let me so I emailed him and he said yes they would be notified. 

What in the world. Had I known that I would have switched to a different bank. 

I had no idea that all accounts (including those with zero balances) would be "included" in the BK. 

I paid a lawyer because I knew I would need one and have no idea what I am doing but it feels like for every 10 questions I ask he only answers 1 and I feel lost in this whole process. 

I am renting and am not behind and will not be falling behind - does this mean my landlord is going to be notified as well? There is a clause in my lease that says they reserve the right to immediately terminate the lease if we file for bankruptcy. Now I am worried. 

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Everybody that files for BK goes through the same panic attacks.   BK lawyers typically charge a flat fee (I think mine was $1500 plus filing fee), but they want to have minimal contact because they are not billing you by the hour.   So you learn things as you go along.   If you are keeping the car with the USAA loan, I would continue to make the payments on time and simply transmit the payment from your bank elecronically to USAA.   In fact set it up for an automatic loan payment each month.

As far as the landlord goes, I had the exact same fear.   I was renting a great condo for way under market from a great landlord and I did not want him notified.  In fact I told my lawyer it would likely be a deal-breaker for me.    He said (and your lawyer might disagree) that so long as I wasn't behind on my rent, I was not in debt and the landlord didn't have to be notified.   It is like a service that you pay for each month --but if you are behind then it is a debt.   I hope that makes sense.   I would be very firm with my lawyer about this point.   Where I live in Seattle it's very hard to rent with bad credit because there are so many very highly-paid tech workers here.   Landlords can pick and choose and they do.

Good luck!

[jmcmillan]

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@CH-7-Mission-Accomplished wrote:

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You will be fine with USAA if you didn't burn them.   No problem.   And they do have secured cards that are automatically approved and they are not a ripoff like sub-prime cards.

USAA no longer has secured cards.

[Guyatthebeach]

BeginningAgain,

I want to offer my condolences.  My dad past away almost 10 years ago while I was filing my bankruptcy. There's not a day that goes by when I don't think about him. I definitely understand where you are coming from. 

Coastal is a fantastic credit union. If you are able to join State Employees CU, do it. Both will work with you during your rebuilding post bankruptcy. Also take a look at PNC. They are very conservative but will work with you. They have a Virtual Wallet that works great to track expenses and when things are due. Two years after my discharge, they have me the best rates.  I would probably dump USAA, as they aren't bankruptcy friendly in my opinion. You may have to call USAA to get the information to pay via Bill Pay from your financial institution, but they will take a payment. 

With regards to your inheritance, follow the advice of your lawyer. Also the state bar may have a call center to help answer your questions. I know my lawyer handled all the legal stuff and didn't give me a single piece of financial advice. I learned a lot from this forum. You will too.

Hang in there. You can do this. If I can bounce back from a bankruptcy, anybody can!

Guyatthebeach