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What Happens if I Win the Lottery in Bankruptcy?

A common question my clients as me is what happens if you win the lottery during bankruptcy and how would it affect my chapter 7 filing? There are 3 parts to this question involving a ticket that was bought before, during or after the petition was filed. In short it depends on when you bought it.

For example, if you bought the ticket on a Tuesday, and on Wednesday we electronically file the papers with the court and get an electronic receipt, and the results of the lottery are announced on Friday, then clearly it is an asset of the bankruptcy estate because you bought it before you filed the petition. It is considered a potential receivable when you bought it on Tuesday. Therefore it is includable in your bankruptcy estate.

However, if you bought the ticket on Thursday, and you filed your petition date stamped for Wednesday, then it wouldn’t be a part of the bankruptcy estate if you won the lottery on Friday. There was actually a case in Massachusetts where this issue really did arise.

In all the years that I’ve filed bankruptcy petitions this issue has never arisen. You may be interested to know that several lottery winners have filed for bankruptcy, and that I had attended an auction of a state lottery ticket that was sold for a cash settlement to an investment company in Australia, for approximately $350,000.

I was also told by one of the attorney’s present that the state law on lottery tickets had been amended regarding the ‘transferability’ of a lottery ticket which was an important issue in the bankruptcy. Why? Because if it wasn’t transferable, then the trustee couldn’t sell it.

I did have one client that did have a limited yearly income from the lottery, but it wasn’t anything substantial. This is a rare and exotic issue in bankruptcy and is a common question from my clients because there are reports out that unfortunately many American’s believe the only way to wealth is through lottery tickets.