William M King and Clara B King

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
NEW BERN DIVISION
IN RE:
WILLIAM M. KING and
CLARA B. KING,
DEBTORS. 	CASE NO. 07-03732-8-JRL
CHAPTER 7
______________________________________________________________________________
ORDER
This case is before the court on the debtors’ petition to release life insurance proceeds to the
female debtor and the court’s order directing the debtors’ attorney to appear and show cause why
he should not be held in contempt for failing to abide by the court’s June 4, 2008 order directing him
to release these funds to the Chapter 7 trustee. On June 26, 2008, the court held a hearing on these
matters in Wilmington, North Carolina.
The debtors filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code
on October 5, 2007. The case was converted to Chapter 7 after the male debtor was killed in a motor
vehicle accident. John C. Bircher III was named trustee. On February 11, 2008, the female debtor
filed amended schedules to reflect her receipt of $12,500.00 in insurance proceeds from her
husband’s life insurance policy. The debtors’ attorney deposited the proceeds in his trust account.
SO ORDERED.
SIGNED this 26 day of June, 2008.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
Case 07-03732-8-JRL Doc 73 Filed 06/26/08 Entered 06/26/08 16:11:41 Page 1 of 2

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The court entered a turnover order on June 4, 2008, directing the debtors’ attorney to release the life
insurance proceeds to the trustee. The female debtor filed a petition on June 17, 2008, requesting
permission to retain $3,000.00 of the life insurance proceeds in order to replace her broken air
conditioning unit. The trustee responded that, although he was sympathetic to the female debtor’s
situation, he objected to the motion because the insurance proceeds were estate property, and the
proposed purchase was not for the benefit of the estate. The trustee then filed a motion seeking a
show cause order based on the debtors’ attorney’s failure to abide by the court’s June 4, 2008 order
directing him to turnover the life insurance proceeds to the trustee.
The trustee and the debtors’ attorney are correct that the life insurance proceeds are part of
the bankruptcy estate. 	See 11 U.S.C. § 541(a)(5)(c) (providing that life insurance proceeds are
estate property if acquired by a debtor within 180 days after the petition date). In this case, the life
insurance proceeds are the estate’s sole asset, and the trustee has informed the court that there are
over $100,000.00 in secured claims 	and approximately $40,000.00 in unsecured claims.
Unfortunately for the debtor, the Code simply does not permit her to surcharge these funds for
necessary expenses prior to distribution to her creditors. 	Accordingly, the debtors’ petition for
release of funds is denied. The show cause order is dismissed because the debtors’ attorney brought
the petition for release of funds in good faith and deposited the life insurance proceeds in his trust
account pending resolution of the present motions.
“END OF DOCUMENT”
Case 07-03732-8-JRL Doc 73 Filed 06/26/08 Entered 06/26/08 16:11:41 Page 2 of 2