Can I borrow from life ins.??

[toomuch]

I really need some money and have about 1200.00 I can get from life ins. policy. Can I do that before I file BK? I have the form to request the loan, but the ins. co. wants to know I have filed for BK, if it is promised to pay a debt and some other things.
I need to make a mortgage payment or pay a lawyer. Has anyone done this? I've never borrowed against the policy.

Thanks,
TooMuch

[lrprn]

I really need some money and have about 1200.00 I can get from life ins. policy. Can I do that before I file BK? I have the form to request the loan, but the ins. co. wants to know I have filed for BK, if it is promised to pay a debt and some other things.
I need to make a mortgage payment or pay a lawyer. Has anyone done this? I've never borrowed against the policy.

Thanks,
TooMuch

TM, when do you plan to file bankruptcy? Typically if you don't pay back a life insurance loan, the company subtracts the amount owed when the policy pays off - an interesting situation when bankruptcy is involved. I wonder if this kind of loan is even dischargeable? Also borrowing against your life insurance can trigger a tax event if the outstanding balance isn't paid off as well.

Are you still paying credit cards or other non-secured creditors? If you are, it would be a better choice to stop payment to those to pay for your lawyer. There are other ideas about what to do when you can't afford your bankruptcy lawyer here - http://moneycentral.msn.com/content/...de/P129758.asp . Hopefully something here will trigger some additional ideas as well.

[HHM]

The BK implications are this...the debt is not dischargeable, because like a 401K loan it is not a real loan, you are borrowing against yourself. The BK issue is the fact that you are taking an exempt asset and making it non-exempt. However, if the money is going to pay your mortgage or your attorney, there won't be any preferential payment issues.

The tax consequences and the benefits of the policy itself, can be affected. Also, are their restrictions on the use of the use of the money (it sounds like there are, and you would be using it for a restricted purpose). Like lrprn said, I'd try to find another way, stop paying your credit card payments, or something...also, what are your intentions with the house, if your not going to keep, stop paying the mortgage.

[toomuch]

TM, when do you plan to file bankruptcy? Typically if you don't pay back a life insurance loan, the company subtracts the amount owed when the policy pays off - an interesting situation when bankruptcy is involved. I wonder if this kind of loan is even dischargeable? Also borrowing against your life insurance can trigger a tax event if the outstanding balance isn't paid off as well.

Are you still paying credit cards or other non-secured creditors? If you are, it would be a better choice to stop payment to those to pay for your lawyer. There are other ideas about what to do when you can't afford your bankruptcy lawyer here - http://moneycentral.msn.com/content/...de/P129758.asp . Hopefully something here will trigger some additional ideas as well.

I'm glad I asked. I didn't think about the tax issue.
I don't know when I am filing. one lawyer told me to wait until 6 months after I last used any of my cc. So that would put me filing the end of March, early April.

I quit making payments on the cards a while back. I don't know how in the world I ever made all those payments and kept up with other payments because we are really struggling now.

I'll figure out something.

Thanks,
Toomuch

[toomuch]

The BK implications are this...the debt is not dischargeable, because like a 401K loan it is not a real loan, you are borrowing against yourself. The BK issue is the fact that you are taking an exempt asset and making it non-exempt. However, if the money is going to pay your mortgage or your attorney, there won't be any preferential payment issues.

The tax consequences and the benefits of the policy itself, can be affected. Also, are their restrictions on the use of the use of the money (it sounds like there are, and you would be using it for a restricted purpose). Like lrprn said, I'd try to find another way, stop paying your credit card payments, or something...also, what are your intentions with the house, if your not going to keep, stop paying the mortgage.

Yes, we are keeping the house. Hubby has been holding off on OT until we file. What a mess.

Thanks for your reply,

Toomuch

[toomuch]

Uh oh

I really need some money and have about 1200.00 I can get from life ins. policy. Can I do that before I file BK? I have the form to request the loan, but the ins. co. wants to know I have filed for BK, if it is promised to pay a debt and some other things.
I need to make a mortgage payment or pay a lawyer. Has anyone done this? I've never borrowed against the policy.

Thanks,
TooMuch

After the advice I received from this forum, I decided against borrowing from the policy, although we desperately need it. I got the check yesterday! I have not opened it yet. Now I don't know what to do. If I send it back uncashed, will it still be considered a loan or can they null and void it?

Thanks,

toomuch

[lrprn]

After the advice I received from this forum, I decided against borrowing from the policy, although we desperately need it. I got the check yesterday! I have not opened it yet. Now I don't know what to do. If I send it back uncashed, will it still be considered a loan or can they null and void it?

Only your life insurance company can answer how to undo the "loan". Give them a call on Monday, tell them you've changed your mind, and ask what you need to do to reverse things and how the reversal will be reported.