Will Lotto Winnings Be a Part of Your Bankruptcy Estate?
Winning the lottery can be the answer to your financial challenges, provided that you hit it big. But what happens when the prize is smaller, but still significant? Will you be able to keep your winnings or will the bankruptcy court take your money and use it to pay off your creditors? It depends.
The Important Question—When Did You Buy the Ticket?
Here’s a fundamental rule of bankruptcy—any property you own at the time of filing must be included in the assets that make up your bankruptcy estate. With respect to lottery winnings, you are considered to own the property when you purchase the ticket. The date of the drawing and the date you receive your winnings are irrelevant. Accordingly, here’s how your winnings will be affected:
- If you buy the ticket before your bankruptcy filing, the ticket and any winnings that come from it must be included in your bankruptcy estate (unless you are able to claim an exemption).
- If you bought the ticket after you filed for bankruptcy, you’ll typically be able to keep all the winnings, provided that you haven’t engaged in any bankruptcy fraud, such as concealing assets or misstating income. In fact, even if you win millions, you can still take advantage of the bankruptcy laws, as the bankruptcy only addresses your financial state at the time of filing.
Are There Any Ways to Protect Lottery Winnings from Inclusion in a Bankruptcy?
Suppose you do purchase your lottery ticket a few days before filing for bankruptcy and you win some amount of money. The only way you can keep any of the funds out of your bankruptcy estate is by claiming a valid exemption. In New Jersey, that won’t amount to much, as the state bankruptcy exemptions only allow for $1,000 in personal property ($2,000 for a married couple).
Contact Attorney Howard N. Sobel
At the office of Howard N. Sobel, we provide personal bankruptcy counsel to men and women throughout the state of New Jersey. Contact our office online or call us at 856-424-6400 to set up a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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