Complicated Insurance Loan

[willowhare]

A couple decades ago, while I was still underage, my parents took out a loan against a Country Companies life insurance policy they had on me. Currently, the loan is still at about $500. I believe the payment is supposed to be about $80 a year.

However, when I came of age, the policy, and hence the loan, went into my name. If my parents do not make the payment on the loan (and they have forgotten the last 2 times!) the letter asking for payment comes to me.

How should I handle this in my bankruptcy? While it isn't really MY loan since it was taken out without my knowledge or consent years ago, the ins co certainly seems to believe I am liable. Must I list it as an unsecured debt? Should I reaffirm it? My parents are unable to pay off the full amount at this time.

[Flamingo]

Get the paperwork your parents signed when they took out the loan on the policy and read through it, especially the loan section. Discuss with your attorney. This should be your parents' responsibility as they initiated the loan on a policy they took out for you (I am sure they are/were listed as beneficiaries) and you, as a minor, of course did not sign. It may all depend on the wording in the insurance/loan documents.

[willowhare]

I'll try

but I highly doubt that they still have it. If they do, it's probably lying in a mouldering pile somewhere.

If that doesn't work, I'll try calling the insurance company itself and see if I can get some answers there.

What is my main concern here? Whether the loan's terms say that I became responsible for the loan after I reached the age or majority, or if the responsibility for the loan still rests with the original signers? Or something else?

[Flamingo]

but I highly doubt that they still have it. If they do, it's probably lying in a mouldering pile somewhere.

If that doesn't work, I'll try calling the insurance company itself and see if I can get some answers there.

What is my main concern here? Whether the loan's terms say that I became responsible for the loan after I reached the age or majority, or if the responsibility for the loan still rests with the original signers? Or something else?

You need the terms of what occurred and what is in the signed contract so you know where things stand before you make any moves and find out what needs to be done. You should also have a copy of the insurance policy. Call the company and obtain that information - don't explain why just say you or your parents misplaced the copy.

[willowhare]

Thanks. I'll call them tomorrow.

[catleg]

I have one of these on a $2000 whole life policy my parents took out on me as a baby. These loans just sit there and the interest just piles up, likewise the dividends on the policy and the interest on the dividends pile up. You can request a distribution of the accrued interest and dividends and pay it towards the loan or just have the insurance company do it, just call them, it's no big deal. You could also just surrender the policy and they will give you the difference between the cash value and the loan.

[willowhare]

Talked to the insurance agent

This was a whole life policy my parents took out for me when I was born. He did not tell me the current value of it. The agent is sending me all the paperwork on it today. Apparently, all the billing notices should have been coming to me, but for some reason did not. He is correcting that matter.

The dividends will be used to cover the amount of the loan.

Now, my question is, what does this do to my pending bankruptcy? While I do not know the cash value of the policy yet, I doubt it would cover my debts (about 50 grand). I am trying to file pro se. Are policies like this exempted?

I really wish my parents had informed me about this sooner!

[catleg]

The federal exemptions cover a whole life policy with accumulated dividends and interest up to $9850.

[willowhare]

I am in Illinois and am required to use the state's exemptions.

[catleg]

[willowhare]

No, the loan doesn't matter. Indeed, it should be taken care of by the end of the week. I authorized the agent to take part of the deductible that has built up to pay the loan. So that's done.

My research matches with yours--so long as I keep my parents listed as the beneficiaries, it is totally exempt in Illinois. From my understanding, I do need to list it as an asset.

After my case is over, I plan to cash it out and roll the value of it directly into a Roth IRA to avoid the tax penalty and get a better return on the money. I'm just glad I found out about this before I filed!