Can they take life insurance money on a deceased spouse that was paid to her before bankruptcy?

Depends on what she spent it on.

Life insurance proceeds received prior to bankruptcy are assets that must be disclosed. There are certain exemptions that can be claimed. In some circumstances it would be advisable to file chapter 13 instead of chapter 7. Consult an attorney as to how to protect your inheritance.

You are not entirely clear as to whether she actually received the funds before filing. If she did not receive funds before filing the proceeds become in a sense property of her bankruptcy estate. A debtor's property comes under the control of the trustee until he can evaluate if the asset is exempt. That said, I believe this asset is exempt under Co. Revised Statutes sec 13-54-102(l)(B).

You do not say how much she received or how she spent the money. Those are important facts needed to answer your question. If, for example, she received $100,000 just before bankruptcy and took a cruise around the world instead of paying debts then her case might be denied on the basis of bad faith and/or abuse. Bankruptcy is for the unfortunate, honest debtor who cannot trully afford to pay debts. Whether the money came from a life insurance policy or she found it in a bag on her porch or she won a lotto ticket is irrelevant in her case. If she can't explain what happened to the money then the trustee will suspect that it is under her mattress and she is hiding it. This might be an additional issue in her case that might come up, particularly if the amount she received is large considering her standard of living.

There is more facts required on this question.

You have to reveal all source of income for the past 3 years in bankruptcy . If it wasn't revealed, that might be the problem. Who she paid could be part of the problem.

No one here knows the facts of her case, and only her lawyer will know her exemptions. But in general, when you receive a lump sum of money before filing, you will lose it.