Lottery winnings

[ivey227]

What shall we do? We won the lottery should we tell the courts? please help with pros and cons of discharge or keep paying monthly payments? What are the BK rules for this.

[free2breathe]

"Never hide and spend new assets or “windfalls.” If you receive an inheritance, receive a tax refund, win the lottery or receive any other windfall in bankruptcy, you must report it to your bankruptcy attorney and trustee. Some of that money may need to be distributed to creditors in your bankruptcy." This comes directly from a bankruptcy attorney's blog. If you allow the case to be dismissed, you would likely end up having to pay interest and possibly penalties that the Chapter 13 is allowing you not to pay. Contact your attorney for the best course of action.

[Peeps]

Ivey, I wish I knew what to tell you on the Ch 13 stuff... sorry, I have no answers. But I just wanted to say congratulations on the lotto. I have a feeling a lot of people here on the forum are waiting for the same thing to happen!! No matter what the BK rules are, I'm sure this will help make things easier. Congrats again, best of luck, and if you're ever passing through Colorado feel free to drop by and let some of that good luck rub off!

[Flamingo]

First, congrats on the win. Secondly, as stated above and as told to us by our attorney while we were in Chapter 13, any lottery winnings, bonuses, etc. need to be reported right away. Your attorney will advise you further as to your particular situation. We received an inheritance during our Chapter 13 and we had to give half to the trustee. It was not that large of an inheritance but we still had to report it.

[HHM]

Let's back up.

First, is this a "real" question? How much did you win?

Second, in chapter 13, you have a few options, but what you do really depends on how much after tax winnings we are talking about, how much you owe to creditors, and what you were trying to accomplish with your chapter 13.

If the winnings are substantial (hundreds of thousands +), you have the absolute right to dismiss your case, you don't need a reason. Just realize that you will use the winnings to pay (settle) with your creditors and they will go back to the date your filed your petition and add back interest and late fees.

If we are talking about only a marginal amount, a few thousand dollars, than I probably wouldn't do anything.

But, as others have said, contact your lawyer.

[ivey227]

Thank you! Its a tough decision, i want it to be over and done with, but something is holding me back.

[ivey227]

Thanks for all of your advice and thoughts, yes this is for real. Our BK is 150,000 and our winnings is 500,000 after taxes. I guess I'm being greedy and don't want to hand over all that at once.(i guess that is why i'm here in the first place) but i do want to be done with this BK forever! I'm afraid of taxes next year and making sure we have enough to pay them. Any other advise would be appreciated.

[HHM]

Basically, you have 2 options, (1) contact the trustee, get the 100% pay out and pay it to end your case, or (2) simply dismiss your case, and deal with your creditors on your own (keeping in mind that that balances owed will significantly increase once the case is dismissed). 9 times out of 10, option 1 is actually cheaper, it really just depends.

Congratulations by the way. Be smart, don't do any stupid purchases, set it aside and really start "planning" the best use of those funds.

[LadyInTheRed]

Wow! Congratulations.

Keep in mind that if you dismiss the BK and settle your debts with the creditors, any forgiven amount will be taxable income to you since you are probably no longer insolvent. But, even if you have to pay tax, settling could still be advantageous, but a hassle. If you go the settlement route, don't let your creditors know you won the lottery. You may want to sit down with a CPA and find out what your best option is from a tax perspective. Besides the BK, you could probably use some advice on minimizing the income taxes you'll pay on the lottery winnings.

If it were me, I think I'd just pay off the BK and be done with it so I can move on with my life.

[clevelandmom]

I have no advice, but let me know if you need a new friend! LOL CONGRATS!

[ivey227]

Well i just contacted my attorney(paralegal) and she states i would have to pay back 100% not the 41% in the plan i would have to back in full to pay off early. Does anyone know if this is true? and if it is, it might be worth getting out of this and settling with the creditors.

[HHM]

Yes, it's true, it is also what I stated above.

[ivey227]

Oh I see now, sorry, didnt exactly understand what you were saying, but now i do since i talked to the paralegal. I will take a few days and ponder over all of this to see which would be the best for me and my family. I will keep you all posted! Thanks again for you all's help.

[SunshineGal]

The best advice I can offer is to ask your BK attorney if you can hire an accountant to help you through this. As someone stated above, any settlements will have tax complications, not to mention the creditors may not be willing to settle if they know you can afford to pay it in full.

On a side note, congrats! I know it must feel rough to win while your in a 13, but on a much more positive note, you'll be out of debt and your chapter 13 much faster and can move on to your new start.

[dneil]

Find out how much the taxes will be and pay those upfront. Pay off that bankruptcy. Congratulations. What an excellent and wonderful thing to have happen!