Life Insurance Policy and Bankruptcy: Beneficiary Change

For those who want to consider issues of rights to life insurance when a debtor files bankruptcy, see In re Maudie Meyers, 2012 Bankr Lexis 5318(Bankr. W. D. N.C.  Nov 14, 2012). Consider a debtor, James Meyers,  who has a term insurance policy.  The named beneficiary is his grandmother, Maudie Meyers.  James Meyers files bankruptcy in early 2009. He does not list the policy in his bankruptcy.  During his bankruptcy, James Meyers changes the beneficiary to Mr. Wallace, a creditor.   Grandma files her own bankruptcy in early 2010.  But 145 dies later James Meyer commits suicide.  Who has the right to receive the insurance proceeds, Mr. Wallace or the bankruptcy estate of grandma?

(The case also has issues regarding rights of reinstatement of lapsed policy).

This case has some complicated issues, but the case is intriguing and serves as a caution.   The court held that only the bankruptcy trustee in the James Meyers bankruptcy case had the right to change the beneficiary.  The change of beneficiary by James Meyers to Mr. Wallace was not valid.  Thus the beneficiary remained grandma Meyers, so her bankruptcy estate was entitled to the life insurance.

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