How Will Winning the Lottery Affect Your Bankruptcy?
If someone wins the lottery while under bankruptcy protection, the amount won, type of petition filed, and timing of the windfall determine how the winnings will impact the case. Filing for bankruptcy requires a debtor to declare any changes in financial condition while under bankruptcy protection, and that includes any windfalls such as lottery winnings.
While the chances of winning the lottery are slim, those who regularly play and are considering bankruptcy should understand the impact of lottery winnings
Lottery Winnings and Means Testing
When an individual files for bankruptcy, a means test will determine if they can file Chapter 7 or not. Any windfall that occurs within 180 days of filing the bankruptcy petition must also be declared. This will then be included in the means test as an asset. The trustee will be able to take the lottery winnings and use them to repay creditors. Winning the lottery within 180 days of filing may make filing Chapter 7 impossible.
Winning the Lottery After Bankruptcy Is Complete
If the bankruptcy is complete, the debtor must still inform the court of winnings, which they are used to repay the creditors. If a debtor in bankruptcy wins the lottery but does not declare the winnings, the court can make the decision that the debtor has abused the bankruptcy system. This can allow for the dismissal of the bankruptcy case. This, then, gives the creditors the right to collect what is owed them. The courts also have the option to charge the debtor with bankruptcy fraud. For this reason, bankruptcy lawyers in Las Vegas will push their clients to declare any windfalls, such as lottery winnings, even after the bankruptcy is complete.
Winning the Lottery in Chapter 13
Chapter 13 bankruptcy, is different in that at least a portion of the debts are repaid. If someone wins the lottery while in Chapter 13 bankruptcy, the lottery winnings will belong to the repayment plan and will go towards paying down debt. If the windfall is large enough, the attorney can negotiate the dismissal of the Chapter 13 bankruptcy with the debts paid through the windfall. Either way, the lottery winnings will likely go towards the debt, not in the pocket of the winner, in a Chapter 13 case.