Handling insurance Proceeds and Bankruptcy
So, while in the YouTube video, I’m focusing on motorcycle shirts and cross-country trips initially, for the blog, let’s get straight into business. In this blog, I’ll discuss the issues of receiving insurance proceeds because of hurricane damages. Since many of us recently experienced Hurricane Milton and Hurricane Helene, and some of those claims are now settling, if you’re filing for bankruptcy, here’s what you need to know.
Listen to this blog.
Key Points:
- Insurance proceeds from natural disasters may not cover all damages, causing financial stress.
- If you’re planning to file for bankruptcy, the use of your insurance proceeds could affect your case.
- Bankruptcy trustees may question the spending of insurance proceeds, so it’s crucial to keep detailed records and receipts.
- Generally, it’s better to repair damages with insurance proceeds and file for bankruptcy later, rather than filing before the repairs are complete.
Natural Disasters and Insurance Proceeds
The reality is that these storms and natural disasters usually cost us money. We don’t make money off of this. This is no profit. So many hidden expenses aren’t going to get covered, whether with insurance or FEMA. For example, the $1,500 in damages to my steel garage will come out of my pocket. For the record, hammering panels into place has worked for now. To learn more about FEMA versus the SBA since there was so much mis/disinformation, click this link.
One example that many are realizing now, especially after the flooding in North Carolina, is that if your home was flooded, you have damaged kitchen cabinets. That, of course, is covered by your policy. However, unless the house was underwater, the cabinets on top weren’t damaged. The insurance company won’t give you proceeds to replace the ones on top, so now you have mismatched cabinets. What can you do? Nothing.
You’ll either have mismatched cabinets because you can’t find replacements for the lower cabinets, or replace the ones on top out of pocket.
To be clear, I am not a big fan of insurance companies. I think that no matter what, you’re going to get screwed one way or another. That’s just my opinion after dealing with them for so many years. Just ask anybody in the medical field, and they’ll tell you the same thing.
Now, what if bankruptcy is possible, whether you were planning this before or due to the hurricanes or natural disasters? The insurance only covered so much? Here’s my biggest concern: we all want to save money. I’m the biggest advocate of that, right? I’m always saying that if you can save money, that’s like making money. So if I save $2 today, that’s $2 that I didn’t have to work for.
The question is, how do you save money with hurricane proceeds? It’s straightforward. Suppose the insurance company gave me $4,000 to fix my fence. I’m not going to pay someone to fix it for me, especially since I’m the one who put it up. It looks pretty good, by the way, and it survived the storm. But that’s a good place to save and cut corners to save money.
But, here’s the problem: if you cut corners and save money, that money is not protected. So, if you file for bankruptcy, the trustee will ask, “Where are the insurance proceeds?” If you received $70,000 and have $40,000 in receipts, that will be a problem because they’ll ask where the other $30,000 went. You’ll be fine if you can prove it was spent on other legitimate expenses. But you can’t file for bankruptcy with the $30,000 sitting there and say it’s all good.
You shouldn’t file for bankruptcy at that point because the trustee doesn’t know if you will fix the things damaged by the hurricanes. That money is not protected, whether from Hurricane Milton, Hurricane Helene, or any other natural disaster. Understand that there could be problems with those funds not being exempt.
Typically, it’s better to fix what you need to fix with the insurance proceeds and deal with the bankruptcy later. You also better keep every receipt. If there are net proceeds from selling the house, those proceeds must be applied to a new property.
My advice to clients is always the same: be conservative. Don’t play games with the trustee by making arguments and counterarguments. You want to avoid going there in the first place. You’ll have to pay your bankruptcy lawyer a lot more because they’re not being paid for that; they’re being paid to file the bankruptcy. Your bankruptcy lawyer wasn’t hired initially to handle a contested or litigated case known as the adversary process.
So, before you take any steps, save yourself money, time, and aggravation by preparing in advance. Talk to your bankruptcy lawyer or a couple of them and figure out the steps you need to take if you’re receiving these funds if bankruptcy will be part of your future.
Updated on May 8, 2025.
North Carolina was recently rejected by the Trump administration on extending the period to apply for assistance due to Hurricane Helene damages. Arkansas, after deadly tornadoes, was also denied assistance from FEMA. Governor Sarah Huckabee Sanders is appealing the decision. It’s also important to note that the proposal by the GOP for funding FEMA is $0.00.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.
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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.
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