Debt is affecting people across the country. It is not a new idea but the rampancy of debt struggles has risen in America. Debt affects a lot of families, causing stress and inconvenience. It’s harder to get loans with the bad credit scores that arrive from paying bills late or defaulting on payments. The last straw for debtors is usually bankruptcy.
Bankruptcy is an arduous process and doesn’t solve all your debt problems. It is a strict legal process that not only takes a lot of time, it also costs money. After bankruptcy has been declared, some debts will be wiped from your slate but it leaves a giant mark on your credit history and score for up to ten years.
The Effects of Bankruptcy
If you file for bankruptcy, you will have to go through legal appointments with your creditors and prove to the court your intention to relieve your debts is not fraudulent. Afterwards, the bankruptcy stays on your credit and can affect new job searches, new applications for credit cards, loans, and any other financial matters. One part of the bankruptcy effect involves your life insurance but few people realize this. If you have an existing policy, the bankruptcy court typically won’t touch it in court to protect your beneficiaries. If you have a permanent life insurance, the bankruptcy court will allow you to keep part of the cash value. The amount will be determined by where you live as the laws differ between states. Any insurance policies you have taken out for someone else like your children or your spouse will be surrendered to the court.
Raising Rates
A bad credit score is known to adversely affect your life insurance premium rates. If you score is bad, the rates for your premium will be very high. If you are already struggling in debt, paying a higher premium is not going to help your financial situation. Once you have filed bankruptcy, you can wait for some time to pass while you rebuild your score before shopping for insurance. However, understand that life insurance companies will still see your bankruptcy on your history report and will consider you a risk.
Life insurance is a smart financial move and you should not avoid it due to debt issues and bankruptcy. It will serve you well to seek out the insurance companies that provide you with term life insurance policies so your family is protected while you straighten out your personal financial life.