Does a Bankruptcy Filing Effect Your Insurance Claim?

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

Filing for bankruptcy is often a chaotic time filled with uncertainty of which assets will be used to help repay your debt and rearrange your finances. A typical concern is whether pecuniary gains from an insurance policy would fall in the category of assets accessible for government collection. Finding out which debts are protected as an exemption in bankruptcy is important so you can properly plan your financial future and have a sense of security knowing how to prepare accordingly.

Florida law defines within its bankruptcy code a list of exemptions that will be protected once you file for bankruptcy. Florida is unique because it does not follow the code of exemptions set forth by federal law, but rather defines its own bankruptcy code through statutory means and using the enumerated Florida Constitution. Florida Statute § 222.201 “Availability of federal bankruptcy exemptions” sets forth a clear guide for what falls under exemption status when filing for bankruptcy. This list includes but is not limited to security benefits, unemployment benefits, pensions, and certain types of insurance claims.  For example, in In re Green, Bkrtcy.M.D.Fla.1995m 1786 B.R. 533, workers compensation disability benefits were considered to be subject to Florida exemption laws despite it being obtained in an injury that occurred in another state. Here, the disability benefits were protected under Florida Statutory Law.

This is one way Florida’s unique bankruptcy code can work to your advantage. Or depending on your scenario it can also be seen as a detriment in some cases because Federal Bankruptcy Code allows the debtor to choose between exemptions and Florida law limits this by adhering to its own list of allowable exemptions while still being subject to some federal regulations. This is also generally the case for states that choose to opt out of the Federal exemptions. In In re Green the injury occurred in North Carolina, but the domicile of the individual receiving the benefits was in Florida making it subject to Florida statutory code.

The 11 U.S.C.A. § 522 sets forth this rule and defines the length of period residing in a state required for it to be considered a domicile making it subject to its congruent state law. This is determined by inquiring into where the individual filing for bankruptcy was residing as his main residence 730 days immediately preceding the date of filing.  If this location is unascertainable then the Court will look to where the debtor has been domiciled for 180 days preceding the 730 day period or a period of length greater than 180 days in any other location.

A common mistaken belief is that when you co-mingle funds of an exempt source with funds from a non-exempt source that you will no longer be able to gain exemption status on the funds which are exempted. This is not the case and you may still have those funds which were obtained via an exempted source protected from bankruptcy collection. Another misconception often made is that Florida bankruptcy code will always conflict or have a different outcome than Federal bankruptcy code or federal law. However, sometimes both lists share an exemption that is protected by either code and sometimes state law may be subject to certain federal regulations. In re Suarez, Bkrtcy.S.D.Fla.1991, 127 B.R. 73. the debtor sought to have his individual retirement accounts exempted from their bankruptcy proceeding. Florida law was applied because it was the debtor’s domicile, but it was still subject to the Employment Retirement Income Security Act (ERISA). However, this did not create a conflict despite being federal law because it was consistent with Florida bankruptcy code.

Florida’s code provides an exemption from creditor collection for a participant or beneficiary in qualified retirement. This exemption can be seen in more depth in Florida Statute § 222.21(2)(a)  This was consistent with ERISA which is designed to protect pension money from bankruptcy and debt collection. The reason why consistency with ERISA was required was because of a concept known as preemption by federal legislation. Preemption occurs when a federal rule governs a certain aspect of legislation and is put in place regardless of the State’s law to create uniformity amongst states regarding certain areas of regulation. Although Florida has opted out of adhering to Federal bankruptcy code, it still may be preempted by other federal law that is not part of the code and must adhere to the rules of the Internal Revenue Code. When preempted by two federal regulations an attorney can help you analyze which will take precedence over the other. For example, § 222.21 is not preempted by ERISA if an IRA is established using the Internal Revenue Code. Each scenario must be analyzed differently depending on the circumstances of the claim. Being aware of certain federal limitations or protections created by legislation is important when assessing which assets and insurance claims will be exempt from Creditor collection.

Typically exemptions set forth in Florida Statute § 222.21 include, but are not limited to the following:

  • Annuities
  • ERISA-qualified Plans
  • Individual Retirement Accounts (contingent on how they are created)
  • Disability Benefits
  • Social Security Benefits (those traceable to social security benefits, and not retirement proceeds)

This list is not exhaustive but gives you an idea of what type of insurance claims and financial compensation are protected from Creditors when filing for bankruptcy. It is important to have an attorney help you understand which of your claims are protected so you can create a financial plan in lieu of your bankruptcy.  For example, if a property settlement is not covered that can alter how you organize your budget or what to expect from your Bankruptcy proceedings. If you have any more questions or require assistance in analyzing your insurance claims after filing for bankruptcy, an experienced attorney can help you take the appropriate steps in understanding your financial situation.

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at[email protected].


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