Here’s a question I hear almost every day. What happens if I win the lottery when I am in bankruptcy?
The answer is that you don’t get to keep it. If you are bankrupt it is considered an asset and the trustee has to step in. Your debts are paid off and you get to keep anything that is left over. That means that you don’t necessarily lose the full amount. If you win $1 million and you only owed $30,000 to credit cards, there will still be a whole lot left over.
This scenario illustrates some of the basic concepts of the bankruptcy system. People are entitled to a fresh start when they are unable to pay their debts. However, your creditors have the right to be treated fairly and equally. Then there’s the bankruptcy trustee. His role is as a referee in the process, making sure that everybody follows the rules. A lottery jackpot is what I call a windfall. It is outside your normal income. My comments above generally apply to windfalls. In addition to lottery winnings, that means things like an inheritance, gifts, etc.
An increase in your income is not the same. Your income may impact the amount you have to pay in bankruptcy, but it is determined by the surplus income rules.
If you are concerned about the cost of bankruptcy or think you might be coming into an inheritance or other windfall, a consumer proposal might be a better choice. Compared to personal bankruptcy, a consumer proposal is a much more streamlined process. Most times it is a single monthly payment to repay a portion of your debts. The amount of the payment is negotiated with your creditors through a trustee. Many people are choosing consumer proposals over bankruptcy because it protects all of their assets, including windfalls.
Confused yet? That certainly was not my intention. If you have been thinking about bankruptcy, or a consumer proposal, contacts us and we would be happy to discuss your situation.