Life insurance policy payoff to beneficiary count as income?

[anuta]

My mother recently died and I was left a small life insurance policy. I used just about all of it to pay off our back taxes. We plan to file BK in May. I know that in our state the money received from the life insurance policy is exempt; however, does it count as income as far as the means test is concerned?

[justbroke]

My mother recently died and I was left a small life insurance policy. I used just about all of it to pay off our back taxes. We plan to file BK in May. I know that in our state the money received from the life insurance policy is exempt; however, does it count as income as far as the means test is concerned?

It does count as income because the BK code only limits certain things (11 USC 101 (10A)). Those certain things not considered income are social security benefits, and other war-time benefits.

So, for purposes of calculating the means test, it is counted as far as I now. However, just wait 6 months between having received the money and filing.

[StartingOver08]

Also, make sure you keep a record of where the life insurance proceeds were spent. Spending them on taxes is exactly the right place...so you chose wisely. It most likely will come up in your 341 even if it was more than 6 months prior to your filing, so just have your receipt handy to provide to the attorney and the trustee.

[anuta]

Thank you so much for answering.

I was concerned about this because the inheritance changed my income dramatically! I have been keeping very good records of how the money is being spent.

In the estate, my mother left me her house, but since she had taken out a home equity loan just a few years ago she was essentially paying interest and no principal. Consequently although I could “own” the house, I could not own the liability.

Two acquaintances who are in real estate (building and buying) formed an LLC and extended a private mortgage to me at 2 points above current interest rates so that I could keep the house. There is no way that any bank would loan me money with my credit as it stands now. This was a very clean and clear business deal. There is about 10K of equity in the house due to value increasing over the past few years. Everything was done by the book with two lawyers involved, an appraiser, contracts etc. and the final actions and closing were done by the title company. Amazingly, the mortgage payments including taxes and insurance are $150 less per month than what we are paying in rent. Plus, we are putting a tiny bit into principal each month.

I have been reading here that it’s not good to buy a house before BK, yet I was left the house. I’m assuming that waiting 6 months to file will also be good as far as acquiring mom’s house.

We stopped paying the CC bills in July 08—now it looks like we wont file until July of 09. Hope the CC’s don’t crucify us before we can file.

Again, thanks so much for your help!

[StartingOver08]

In the estate, my mother left me her house,

I am a little confused by these two statements....
Your mother left you the house...so it is yours, correct?

You did not buy this house, but you have already ACQUIRED the house through inheritance, correct?

I am assuming that you have already completed the probate process on your mother's estate... If you have not, that is something you need to discuss with an attorney. If you plan to keep the house your mother left you, you must make sure to be current in the mortgage payments. This is something best addressed by the attorney.

Have you checked the exemptions for BK in your state?
Your case will get a lot of attention from the trustee just because an inheritance is involved. Make sure all your ducks are in a row with your mothers estate before even considering filing for BK, IMO.

[anuta]

[anuta]

I have checked the exemptions in our state and the exemption for homes is 60K, doubled if filing BK jointly. There is only 10K of equity in the home.

[StartingOver08]

It sounds like you have your bases covered!

[anuta]

I'm trying! It's really good to find this board. It seems really helpful and encouraging.

Thanks again.