In the Chapter 13 bankruptcy case of Carolina Lottery Commission v. Wells, the bankruptcy court ruled against the Carolina Lottery Commission after it attempted to except its claim from bankruptcy discharge.
The details of the bankruptcy case:
The Chapter 13 debtors owned and operated a convenience store. In May 2006, the store received permission to sell lottery tickets. In April 2008, when they closed the store, debtors owed the North Carolina Lottery Commission $38,933. After the debtors filed for bankruptcy, the Lottery Commission filed a complaint seeking to have its claim excepted from discharge by Section 523(a)(4). The debtors argued that Section 523(a)(4) was not applicable because the contract did not require the debtors to maintain or establish a separate trust account for the benefit of the North Carolina Education Lottery. Section 523(a)(4) requires the existence of an express or technical trust created by agreement or by statute that specifically imposes a fiduciary obligation. Finding neither an express nor a technical trust, the court ruled for the debtors.
The bankruptcy court further noted that while the state lottery commission stipulated that money received from lottery sales be held in a trust account, that stipulation was only stated in promotional materials. The bankruptcy court said that since the stipulation to hold lottery money in a trust account was not stated in a contract and that there was no evidence that the debtors agreed to keep the money in a trust account, the $38,933 would not be excepted from bankruptcy discharge. In the end the debt owed to the lottery commission was discharged in the debtors’ Chapter 13 bankruptcy.