A Bankruptcy Court held that the cash value of two disability insurance policies cannot be "claimed as exempt as the net cash value in a life insurance or an endowment policy, but are exempt from the bankruptcy estate as the right to receive a disability benefit.  In re Bowen, No. 11-71289 (C. D. Illinois) (Order entered September 23, 2011).

In 2011, Steve and Kim Bowen filed a voluntary Chapter 7 bankruptcy petition.  Their Schedule C -- Property Claimed as Exempt, filed with their petition, included the cash value of two disability insurance policies with a value of $7,777.  The appointed bankruptcy trustee included the two disability insurance policies in the Bowen's bankruptcy estate concluding that the policies were not exempt as life insurance because they were disability insurance policies, and they were not exempt as a disability benefit because Mr. Bowen was not receiving disability benefits at the time the bankruptcy petition was filed.

The Bankruptcy Court found that a debtor's "contingent right to receive payment at some uncertain point in the future" was a protected right.  Therefore Mr. Bowen's right to receive disability payments included any disability benefits received at the time the petition was filed, and the accumulated cash value of the two disability insurance policies.  This applies whether disability benefits come from a public, i.e. SSDI, or private source. 

The Bankruptcy Court agreed with the Trustee that the cash value of the two disability insurance policies was not exempt as life insurance, but disagreed with the Trustee that the policies were not exempt as a disability benefit.

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