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Loan from Life Insurance Policy

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Loan from Life Insurance Policy

If I pay back a loan that I took from a life insurance policy, just before filing, is that considered preferential?  It is not giving preference to one creditor over another.

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Re: Loan from Life Insurance Policy


@Indianhead wrote:

If I pay back a loan that I took from a life insurance policy, just before filing, is that considered preferential?  It is not giving preference to one creditor over another.


No you can not, I believe it cant be within 90 days of filing, although not sure how far trustee can go back.

 

And that is exactly giving preference to one creditor over another. 

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Frequent Contributor

Re: Loan from Life Insurance Policy


@Jnbmom wrote:

No you can not, I believe it cant be within 90 days of filing, although not sure how far trustee can go back. And that is exactly giving preference to one creditor over another. 

Unfortunately, the answer is not as simple as stated above and OP's question should be answered by an attny in his/her locale that understands state law as it relates to life insurance and the implication of a bankruptcy. 

 

There are several issues that must be discussed, such as:

 

  • Is this a secured debt - secured by the policy itself? If “yes” - payment most likely is not a preference.
  • Is the cash value exempt? If “yes”, maximizing your allowed exemption by paying back the loan is not necessarily wrong and/or recoverable - although waiting 91 days (if not an insider) or 1 year and 1 day (if deemed an insider due to the nature of the loan) might be wise.

These are only 2 considerations and the Bk Court's interpretation of state law plays a major role in how a bk trustee will handle the payback of a loan against a life insurance policy.  

 

Before OP decides to do anything, OP should discuss the ramifications with a qualified attny.

 

Des.

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