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Bankruptcy Debtor Squanders Lottery Winnings & Receives Discharge

Posted By admin || 13-Mar-2009

There was an interesting bankruptcy case in Connecticut involving a debtor who was allowed a bankruptcy discharge despite the fact that she squandered money she won in the lottery after filing for bankruptcy.

Here are some details of the case: 

Four days after filing for Chapter 13 relief, the debtor won $100,000 through the state lottery. She revealed the winnings to the trustee shortly before the Section 341 meeting. By that time, the $70,298 in net winnings she had received had been reduced to approximately $37,000. In ad¬dition, she had $12,000 in stock that she had bought. Over the next few months, the debtor spent the rest of the money despite the trustee's warning that she needed to use it to repay her creditors. After the debtor's case was converted to Chapter 7 at the request of the Chapter 13 trustee, the U.S. Trustee filed a 3-count complaint to deny the debtor's discharge.

The bankruptcy court decided to grant the debtor a discharge because the lottery money was gained after she filed for bankruptcy and therefore was not part of the Chapter 13 Bankruptcy estate. Also the bankruptcy court found that since the debtor did not request the conversion to Chapter 7 bankruptcy, that her case would not be dismissed and she would be granted a bankruptcy discharge.

The debtor basically got lucky. If her Chapter 13 bankruptcy case was not converted to a Chapter 7 Bankruptcy by the trustee she might have faced a dismissal of her case or worse for spending the lottery money. If you file for bankruptcy and receive a large sum of money afterwards speak with a bankruptcy attorney to find out the proper actions you should take to protect your bankruptcy case from dismissal.

Categories: Bankruptcy Dismissal
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