If a debtor files Chapter 13 bankruptcy , their disposable income must go to pay their creditors. However, the bankruptcy code allows certain deductions when calculating a debtor’s disposable income. Insurance is one of several deductions that bankruptcy debtors have the right to take. Unfortunately, many debtors who are a pennywise and a pound foolish forgo these deductions to save cash in the short-term.
Types of Insurance that Reduces Your Disposable Income in Bankruptcy
Let’s take a look at a few types of insurance that a bankruptcy debtor can purchase to reduce their disposable income:
Health insurance is deductible when calculating your disposable income in Chapter 13 bankruptcy. If given a choice, it’s wise to take out health insurance instead of paying your hard earned cash to creditors. Health insurance not only allows a bankruptcy debtor to take care of their health and that of their family, it protects their future income from medical debt.
If a debtor is the primary income earner in their household, life insurance can mean the difference between a comfortable living and destitution in case of the debtor’s death. Bankruptcy allows a debtor to reduce their disposable income by buying life insurance, don’t let the opportunity to save cash and protect your family pass you by.
If debtor is incapacitated during their Chapter 13 bankruptcy, they might be able to convert to a Chapter 7 bankruptcy ; but they still need to bring in an income to pay for their everyday expenses. Disability insurance can partially replace income so that a work injury or unexpected illness doesn’t completely destroy your finances.