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Bankruptcy Law/Removing lender as beneficiary after discharge


I had a business loan (personally guaranteed) that was discharged through personal bankruptcy (chap 7) in Michigan back in 2007.  As a condition of getting the loan, I was required to get life insurance and name the lender as a beneficiary (in the amount of the loan).  Now that I no longer have the business (or the loan), I'd like to remove the lender as a beneficiary on the policy.  However, the lender refuses to allow me to remove them as a beneficiary and my insurance company won't allow me to cancel the policy without consent of the lender.  So, it seems I am continuing to pay for a policy that, should I die, will pay no actual benefit to my other beneficiaries (wife and kids).  Since the loan was discharged, am I still required to keep this policy?  If not, how can I either cancel the policy or remove the lender as a beneficiary?

Scott--look at the policy and see who is the owner.  It is the owner that dictates who can be the beneficiary;  unless there's an irrevocable clause of some sort or it's in an irrev. life trust, the owner (if that's you) should be able to change the policy.  If the lender is the owner, then they alone have that right.

Now as to the 7 effect, that as you know would have discharged your legal obligation on the guarantee but also any promise to keep the insurance in force.

If there is some reason why you can't change the bene as your message indicates, you have the right to just quit paying -- in that instance I'd let the lender know you're going to cease paying the premiums so they can then pick up the tab, which they should be entitled to do.

While your cessation of premium payments would probably have been a default under the loan agreement (guarantee agreement), since that went down the drain in the 7, you should be able to stop payments without a problem.

I'm assuming there was no reaffirmation of your guarantee in the chapter 7 -- I'd be surprised if that happened, but that would be the only thing that would revive your personal obligation.

Good luck!  Let me know how it turns out with a follow up "question".  

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Consumer bankruptcy questions invited. I've been filing Chapter 7, 11 and 13 cases since 1985 in Calif and Arizona. I do NOT do homework questions. Let me know what state you're located in when you write. My bankruptcy practice is limited to California and Arizona but inquiries from other states are welcome. Your local jurisdiction determines exemptions. Find more background information at our website, Individual Chapter 11 and small business chapter 11 questions invited. We can also advise on the creditor's side if for example you have a fraud case, money judgment etc against someone who has filed (or is threatening) bankruptcy. We have filed and defended numerous adversary complaints in bankruptcy court and opposed trustees' demands for turnover of assets from time to time.


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