More money, more problems- there’s a reason many lottery winners use trusts or wear masks to collect their prizes. But the subject of many people’s fantasies can become a curse. Surprisingly, bankruptcy winners are more likely than the average person to declare bankruptcy. There are plenty of ways a sudden windfall of cash can be drained. Friends and family members may come out of the woodwork seeking financial assistance. The lottery winner could make bad investments or even be scammed. Or if the lottery winner is not accustomed to having wealth, they may simply stretch their budget too far and spend so much they wind up in debt. Read on to learn more about the lottery-to-bankruptcy pipeline and other lottery-related issues in bankruptcy. If you’re seeking a consultation with a knowledgeable Arizona bankruptcy professional and an affordable, flexible payment plan quote, call 602-649-4949 to get started today.
The Increased Likelihood Of Bankruptcy After A Lottery Win
It seems counterintuitive that lottery winners are more likely to declare bankruptcy. But according to the CFP Board of Standards, approximately one-third of lottery winners end up bankrupt. Lottery winners are also more likely than the average person to declare bankruptcy within three to five years of winning. You may see headlines of lottery winners taking home prizes in the several hundreds of millions of dollars, but most lottery prizes are much more modest than this. If a lottery winner gets a few hundred thousand and buys a large house and a giant truck, the bulk of the winnings could be gone and the lottery winner probably doesn’t have the base income to pay their increased living expenses like taxes, insurance, gas, etc. Of course, this isn’t the case for all lottery winners. Some invest their winnings in a diverse portfolio and only make slight changes to their lifestyles.
Chapter 7 Or Chapter 13 For Lottery Winners
Chapter 7 bankruptcy is the most common type of bankruptcy case, usually what comes to mind when most people think of bankruptcy, and what seems like the most beneficial type of filing on its face. In chapter 7 bankruptcy, unsecured debts like medical bills, credit cards, and some taxes are cleared in a process that is relatively simple and only takes 3 to 6 months. Chapter 13 bankruptcy turns those debts into a 3 to 5-year payment plan based on the debtor’s income. So while clearing debts might sound more immediately appealing than paying them off, chapter 13 can allow a debtor to keep valuable assets that could be taken by the trustee if they were to file for chapter 7 bankruptcy instead. The debtor’s income could also be too high and disqualify them from a chapter 7 filing.
Protecting Lottery Winnings Purchases With Bankruptcy Exemptions
If a post-lottery bankruptcy filing was caused by reckless spending, some of these purchases may be safe from the bankruptcy trustee, while others might not be. Obviously, experience purchases like vacations and restaurant dining can’t be returned or refunded. Many physical possessions need to be protected by bankruptcy exemptions, or the trustee might take them to sell at auction. The proceeds from this auction would primarily be used to pay the bankruptcy debts, and the trustee would get to keep a portion as payment for the case.
Average Monthly Income For Bankruptcy Eligibility
Income from a wide variety counts when a debtor calculates their average monthly income for bankruptcy eligibility. Only a few types of income, like Social Security Income and child support, are exempt from the bankruptcy process. If a debtor wins the lottery shortly before filing for bankruptcy, their winnings can jack up their average monthly income and cause them to be disqualified from chapter 7 bankruptcy or have unaffordable payments in chapter 13 bankruptcy. For bankruptcy, average monthly income is derived using the last six months of the debtor’s income information. However, most lottery winners file 3 to 5 years after winning, so this is an uncommon issue for these bankruptcy debtors.
It is crucial for a bankruptcy debtor to calculate their average monthly income correctly. If they underestimate their income and file under the wrong chapter, their case could be dismissed, or it could cause other issues to arise. Once calculated, the debtor can compare it to the median household income for their household size in their state to see if they qualify for chapter 7 bankruptcy. Debtors whose income exceeds this amount still may be able to qualify using the means test. Average monthly income also determines if a debtor has sufficient income to qualify for chapter 13 and how much they must pay into that plan. Don’t file for bankruptcy without being absolutely certain that you have accurately calculated your income. Discuss your potential filing with an Arizona bankruptcy lawyer for free by calling 602-649-4949.
What Happens If I Win The Lottery After Filing For Bankruptcy?
Spending money on lottery tickets while in an active bankruptcy case is counterintuitive, but it is an issue that has been addressed by bankruptcy courts in the past. Winning the lottery during bankruptcy, or shortly afterward, could put your winnings at risk of being taken by the bankruptcy trustee. Arizona’s bank account and cash on hand exemption to protect spare funds at the time of filing is only $300 for an individual and $600 for a married couple. There is no exemption that can be applied to cash prizes like winning the lottery or gambling.
Whether or not your lottery winnings are safe will largely depend on when the lottery ticket was purchased. If the ticket was purchased before your bankruptcy petition was filed, the winnings must be included in your petition. This applies whether or not the winnings were claimed before your filing and if you filed after buying the lottery ticket but before the winner was announced. Lottery winnings from tickets purchased after your filing date are safe from the bankruptcy trustee’s grasp. Failure to properly report your lottery winnings could result in a bankruptcy fraud investigation, which is a serious felony that can carry prison time. Make sure your petition is full and accurate by filing your case with an experienced professional. Get started today with your free consultation with My AZ Lawyers by calling 602-649-4949.
Feel Like You Need To Win The Lottery To Deal With Your Debt Situation? Consider Bankruptcy Instead.
Debt can be overwhelming, and if you’re feeling pressured from creditors, a get-rich-quick scheme may seem like the only way to relieve that pressure. But spending money on lottery tickets when you are already behind on bills has a very low likelihood of solving your financial problems. If you file for bankruptcy, creditors who are seeking to pursue you for unpaid debts are stopped in their tracks by the automatic stay. This relief will be permanent if your debts are successfully discharged through your filing. The best way to make sure your filing is executed correctly is by retaining a qualified bankruptcy firm to handle your case. Our office seeks to offer a high-quality option for Arizonans, including by offering payment plans starting as low as Zero Dollars Down. Learn more about the process of declaring bankruptcy with Atlas Bankruptcy Attorneys today by scheduling your free consultation at 602-649-4949.
