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Winning the lottery


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    Winning the lottery

    Okay this is definitely a hypothetical but I'm curious if any of the veteran legal minds on this forum know how this would play out.

    Part of chapter 7 is that you are obligated to inform the trustee if you have a financial windfall within 6 months after filing bankruptcy. Lets say someone files a no assets case and manages to wipe out 50K in credit card debt. Lets say 3 months later the same individual hits the power ball or whatever and wins 500K. I assume that the trustee would only get to collect enough to satisfy the outstanding debt plus a percentage for himself. That would seem like it's what's fair. The 500K becomes part of the bankruptcy estate though. I guess I'm asking, how would they handle a case in which the bankruptcy estate is larger than the outstanding debt. It seems like a situation that should never happen but through extreme circumstances like winning the lottery it might happen.

    Originally posted by Brokensystem View Post
    Part of chapter 7 is that you are obligated to inform the trustee if you have a financial windfall within 6 months after filing bankruptcy.
    This is only partially true. For some reason, the Internet keeps using the word "windfall" when the bankruptcy code is very specific about the three (3) specific conditions where the debtor acquires or becomes "entitled" to acquire. Those three are property as follows;
    1. by bequest, demise, or inheritance
    2. by divorce decreee
    3. or as a beneficiary of a life insurance policy
    The code goes on to say that this is only for that property (enumerated above) that the debtor acquires or becomes entitled to acquire, within 180 days of filing. That's it. Nowhere else in the code does it even mention the word "windfall" or for any money that you may receive, other than those three specific types of property.

    So, I don't care if you hit the Powerball one day after filing. The winnings are simply not property of the bankruptcy estate (period). I know that a lot of websites say that "winnings" and "windfalls" received within 180 days of filing, are somehow property of the Estate; they are not.

    As for whether the Untied States Trustee (UST) could intervene and move to dismiss your case for totality of circumstances, that's another story. The UST always has that trump card, but that trump card only exists up to the last date to determine dischargeability (60 days after the first scheduled 341 Meeting). After that... the opportunity to object is lost. Theoretically, you could win on Day 61 (after the 341 Meeting), and the UST couldn't even move to dismiss the case under a totality of circumstances objection.

    The bottom line is this. Only property received (or that you become entitled to receive) by death, divorce, or from a life insurance policy, within 180 days of filing, is property of the bankruptcy estate.

    (This questions comes up at least once a year. I don't know why the Internet, and some attorneys, are not clear about this very specific condition. If a debtor did win the day after filing, the Debtor could chose to pay all of the "allowed" claims to satisfy that UST/Trustee. That doesn't make the windfall "property of the bankruptcy estate" by any means. It's just the debtor making a potentially smart decision because the debtor may be able to avoid paying some creditors such as those creditors that fail to file, or those creditor to which the debtor wins an objection to the claim, thereby disallowing the claim and reducing the total debt.)

    Footnote: my response is related to Chapter 7 cases. In Chapter 13 cases, it would depend on the Plan's language and could further depend on whether the debtor is in a 100% plan. This also depends on when you bought your winning ticket (e.g. becoming "entitled" to the winnings). Some Trustees may ask if you have outstanding lottery tickets purchased before filing.
    Last edited by justbroke; 03-12-2019, 10:07 PM.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    I am not an attorney. Any advice provided is not legal advice.


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