Can Creditors Take My Benefit

[esteban]

My question involves insurance law for the state of: Indiana

I just discharged a bankruptcy about two months ago. My mother died June 21st. I am getting 130K in life insurance. I have 250K total in student loan debt. My mother cosigned on most of them. My private loans are in default, but they have not sued yet and they are working out payments with me, but have asked for payment in full. Do I have to give them all the insurance money? If I do, I will be homeless and carless. I was planning on using it to pay off my mom's mortgage (so I can live there, because I already do) and buy a car, then give the remainder to the student loan people.

[jk]

If they haven't sued, yet, they cannot "take" anything. If they sue, they can lien or garnish anything not exempted under law if given a judgement.

The one thing that might be a problem: did your mother pass before your BK was discharged? If so, did you include the life insurance benefits in your assets?

[esteban]

She passed three weeks after it was discharged. Awful timing. Also see my posts in the student loan section if you feel like you have more advice to help me out! Thank you, I really appreciate it.

[jk]

sounds like a terrible series of events. Due to the timing, I would not see any reason the insurance benefits would be of a unique concern other than it becomes an asset for you subject to attempts to claim it when/if a judgment would be obtained. Until such time, it is simply your money.

[esteban]

Next problem-- my ex is threatening to sue if I don't use the life insurance money to pay off the loans he cosigned on. Can he do that? He says he can and he will get them to make me sell the house if I "commit fraud" as he says it. He thinks it is a crime to make sure there is a roof over your head and transportation before paying a defaulted student loan debt. Maybe it is a crime, I don't know.

I told him that it is unlikely a judge would allow the forced sale of my home to satisfy cosigned debts from a five year marriage as long as I am making good faith effort. I am pretty sure that if that kind of thing is allowed, that the student loan people would be placing liens and forcing a sale and such before he could. Doesn't a loan have to be paid off before a cosigner can sue?

I really need an attorney on retainer that knows about student loan debt law, real estate, and probate law. Any suggestions??? I am getting more and more desperate the more I think about this. I am going crazy!

[jk]

No, a loan does not have to be paid off before a co-signer sues. All that has to happen is the co-signer incur damages due to your failure to make payments as promised. If he has not made any payments on the loan, he has nothing to sue for. Using the money to pay what you intend rather than the educational loans is not fraud anyway you look at it.

did your divorce judgment say anything to the debts?

as to lawyer referrals: try your state bar association.

[esteban]

Actually, the divorce agreement did say something about them. It said if I get a "windfall" defined as any amount of money over $5000 gained from a list of examples, I have to give 50% of it to the loans he cosigned on. When we wrote it up, we verbally agreed that my mother's inheritence wouldn't be a windfall because it was expected. How the money was to be spent was already decided, but there was no will. I am sure he could make a logical argument for his case, but I think for the most part I am protected.

However, our attorney who did the bankruptcy never told us that we needed to make payments on the private loans. Maybe we misunderstood what he meant by "they can't come after you for payment." Well, neither of us paid nor received any mail about any of the loans during the bankruptcy. It was a surprise that they were in default. (Not that we could have made payments during that time anyway...) There is language in the decree about him being able to request financial statements, pay stubs, etc... of mine to see if I am paying the loans. He hasn't asked to do any of that.

I plan on paying him back the payments he's made so far, but I just don't have enough to devote $60K to it. I can pay off one small loan and make full payments throughout the next several months until the money runs out. And I can't neglect the other loans I need to make payments on in favor of his. I agreed to all this because I thought I was protected as long as I was making good faith effort to make payments. And if I ever do get enough money to pay them all off, I certainly will... but right now I have more immediate needs.

My mother never disclosed to him how much she had in life insurance. Because I told him there was 250K at one point years ago, he thinks that is the amount I got. It isn't. She had to cash some of the policies out during difficult financial times.

The estate attorneys were horrified and strangely intrigued when I showed them the decree. They said the language was horrible, but they liked the challenge. My ex's friend wrote it up, he just passed the bar.

[Dogmatique]

I hate to say this, but I think your ex could make an extremely compelling case that the money is actually a windfall amount even if it's not specifically listed in your decree.

That's something you need to be prepared for.

[jk]

It said if I get a "windfall" defined as any amount of money over $5000 gained from a list of examples, I have to give 50% of it to the loans he cosigned on. When we wrote it up, we verbally agreed that my mother's inheritence wouldn't be a windfall because it was expected.

How much would you be willing to bet he does not remember excluding the life insurance benefits from the "windfall" class?

A written contract is based in the written word. If it isn't in there, it isn't in the contract. Your negotiations prior to the writing and signing of the contract are not applicable now. If the list of possible windfalls is limited to those that would trigger this action and the life insurance is not listed, then it doesn't apply. If the list is merely examples, then it is a great possibility that this money can trigger the action.

[esteban]

I've talked to him. As long as I pay him back, he says he won't sue. I tried to explain why that wasn't just "fun money" for me and that is why I need it for other necessities right now. I lost my job, have had trouble finding anything other than part-time waitressing, have only one clunker of a vehicle that I am scared to drive, and we have to sell the home I live in, which means I need to secure myself shelter in the meantime. He was under the impression there was a lot more than there is. And I spoke with a lawyer who said life insurance proceeds are protected from creditors, but my own limited research said it is only protected from the creditors of the person who died, not the one who receives the benefit.

Which is another thing... my lawyer is asking me to use that money as a loan to the estate, which of course I would not get back. I don't mind paying to keep up the house while we sell it, but she wants 50k. It would end up paying her credit card debt, the only other claim that we expect. I don't think by law I am required to pay that, am I?