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Life Insurance Policies And Bankruptcy

Life Insurance Lawyers should find this interesting in case they did not already know it.  It is a 2023 opinion from the U.S. Court of Appeals for the Fifth Circuit.  The opinion is styled, In The Matter Of Frank W. Gordon; Judith B. Gordon, John Patrick Lowe v. Frank W. Gordon; Judith B. Gordon.
Lowe is the duly appointed Chapter 7 Trustee of the bankruptcy estate of the Gordons.
The Gordons claimed the surrender value of two life insurance policies as exempt from the bankruptcy proceedings under Texas state law..  Lowe objected to the exemption and the bankruptcy court overruled the objection.  This appeals Court affirms the District Court ruling.

The Gordon’s filed for bankruptcy.  Under 11 U.S.C., section 522(b)(3) they elected to exempt two life insurance policies.  For both policies, Frank was the insured and Judith was the direct beneficiary.  Lowe objected.

Generally, when debtors commence a bankruptcy, all their property becomes part of the bankruptcy estate pursuant to 11 U.S.C., section 541(a)(1) and (2).  But debtors may remove property from the estate by using the exemptions described in federal or state law according to section 522(b).  Here the debtors claimed the cash surrender value of the two life insurance policies is question under Texas Insurance Code, sections 1108.001 and 1108.051.
Texas “exemption laws should be liberally construed in favor of express exemptions, and should be restricted …  to minimize their operation.
The case goes into more analysis of the statues and are good reading for someone who runs across this type of situation.
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