My niece and her husband were in the middle of bankruptcy and he died suddenly. It is a chapter 13 - she was left with their 3 children (age 3 years to 7 years) to raise. He had life insurance policies worth $800,000.00; the lawyer says to turn them over to him. My neice's part of the bankruptcy debt is $2 million - and I understand that she is responsible for her debt, but can the trustees decide that the children should be provided for and put a percentage of the insurance benefit in trust for them? My niece and the kids are left with nothing, no house, no car, nor money to buy food, etc. (She has applied for social security). This is in the state of Missouri - also she was named as beneficiary, the kids weren't named - although it was understood between them that she would raise the kids with the money. Thank you so much in advance for any wisdom you can share.

It may no longer be feasible to remain in Chapter 13 if the husband's income was funding the plan payments. However, $800k at 5% will generate $40k per year; there are not many Chapter 13 plans with that much funding. I am curious: why would your niece be in a Chapter 13 if she were left with no house or car? Chapter 13's are for retaining the debtors' estate.

It may no longer be feasible to remain in Chapter 13 if the husband's income was funding the plan payments. However, $800k at 5% will generate $40k per year; there are not many Chapter 13 plans with that much funding. I am curious: why would your neice be in a Chapter 13 if she were left with no house or car? Chapter 13's are for retaining the debtors' estate.

I am not sure of all the details, but to give you a little history: they had a home construction business that went under (with several investors that thought he had managed the business carelessly and were, at the time of his death, trying to charge him with some kind of misconduct); he was the "full-control managing investor" - I think that's what they called it; the other investors had until Aug 15 to come up with evidence to charge him with - my nephew-in-law died on Aug 3 of a massive heart attack. No evidence could be found to show misconduct and all his "numbers" added up. The housing market went flat like everywhere else in the nation and they couldn't sell anymore houses. Anyway, they had filed on their home, I don't know why they didn't keep it exempt, but they had a friend that financed another home for them and put it in the friend's name-they had agreed to "rent with purchase option" for three years and at the end of that time, they would hopefully be able to secure a loan to buy that home. My niece is very naïve about anything that was going on in their home building business and just has always taken care of their home and the kids. Believe me, she sees the error of that now. So now, she has to try and sort this all out - her name was on much of the business stuff and she is now responsible for a large part of the debt. Oh, and they repo'd her car a few days after we buried her husband. She says they will be picking up his truck and work van, too. The bankruptcy lawyer says turn the life ins benefits over to him to give to the trustees and if there is anything left, she would get that... but that her debt is 2 million. He told her he didn't think it was fair either to leave her and the kids destitute, but to "write her Missouri representative cause it was his fault this law was in place". Her lawyer said that if they had actually listed the kids' names on the insurance as beneficiaries, they could have done something.? Just doesn't seem right to me, after all the KIDS didn't file for bankruptcy, the parents did. But I will tell her to ask him if she should stay in the Chapter 13. He just doesn't seem too helpful with giving her any advice on alternative options. By the way, her insurance company told her that the money is exempt from bankruptcy proceedings. What a mess! But thank you again for your help.

The bankruptcy court has full right to take any and all money and apply it toward the debts, So yes they can take this money, and no they do not care about the care of the children they expect her to go out and get a job and pay for those bills.

She can try and change over to a chapter 7 but even their she has to give most over.

And in the end, she needs to sit down with an attorney and find out if there is any way to keep a part of the moneyin a trust for the kids,

I would not turn over any property to the attorney or the Trustee until you absolutely understand the law, or a judge orders you to do so, OK?
This case needs to be re-evaluated in the light of the husband's death. Any of his separate debts can be converted to a Chapter 7, and the niece can most likely proceed with her Chapter 13 as an individual, if she can afford to do so. The insurance proceeds should not be subject to the husband's individual debts.
Check this: Life Insurance Proceeds Missouri Bankruptcy Exemptions see: Missouri bankruptcy exemptions, US federal bankruptcy, Legal Helpers (http://www.legalhelpers.com/us-federal-bankruptcy/missouri-bankruptcy-exemptions.html)

You are very kind with your help. I am fowarding the link to my niece so that she can show it to an attorney. Thank you for giving us a place to start.