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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
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Experience:  Run my own successful business/contract law practice.
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If I am filing for bankruptcy and I win the lottery, will I

Resolved Question:

If I am filing for bankruptcy and I win the lottery, will I have to use my winnings to pay off the debt? Please indicate the specific law.
Submitted: 4 years ago.
Category: Business Law
Expert:  Dimitry K., Esq. replied 4 years ago.

Thank you for your question.

That very much depends. Was the debt discharged? Are you filing for Chapter 7 (full liquidation) or Chapter 13 (restructuring)? If the former, upon discharge of debt the debt holder can no longer pursue you for the payoff since the debt is no longer something that you are legally responsible for. In a Chapter 13 situation, a trustee is in charge of your assets and he or she has the ability to settle or set payment schedules with creditors. In that situation, since the debt is not discharged, merely reconsolidated, your winnings would go toward payoff of the debt. But again, for the first example, bankruptcy must not simply be filed, it must also be discharged and completed since that removes the debt--if you are simply in the middle of filing, this is still valid debt and something that would require you to pay off the creditors since your winnings would be considered an asset and be taken into consideration by the courts.

Good luck.

Customer: replied 4 years ago.
You did not indicate the specific bankruptcy law.

Let's say that I file for Chapter 7 bankruptcy and I win the lottery. The bankruptcy has not been discharged. Will the lottery winnings have to be used to pay off the creditors? Please indicate the specific law.

What are the repercussions of giving the winning lottery ticket to a family member to claim the winnings?
Expert:  Dimitry K., Esq. replied 4 years ago.
Diana,

I did not know which bankruptcy you were asking about, and until I knew that I did not conduct the search. As for which law, bankruptcy is both federal and state, meaning you would also have to tell me which state the person would be filing in. Then I can provide you with research that you would be able to utilize. Please advise.
Customer: replied 4 years ago.
State of Maryland
Expert:  Dimitry K., Esq. replied 4 years ago.

Thank you for your follow-up.

Maryland Chapter 7 bankruptcies are governed under Md. Code Ann, Md Cts. & Jud. Proc. Code Ann. Sec. 11-504, which sets out all of the exemptions which a debtor may keep when they file for bankruptcy (or as the statute calls it, 'executing a judgment'). By definition anything over that amount has to be provided to the trustee so as to go toward paying of the debt. You can find the full statute at the link below:

http://www.legalconsumer.com/bankruptcy/bankruptcy-citation.php?CitationID=1063

If funds are provided to someone going through bankruptcy, there may be a potential gift tax liability, as well as the winnings are going to be taxable themselves as income to the party who receives the funds.

Good luck.

Customer: replied 4 years ago.
Is the gift tax based upon the amount of the winnings or the amount I paid for the ticket?
Expert:  Dimitry K., Esq. replied 4 years ago.

Diana,

The amount is based on the winnings. If you win $200,000,000.00, you do not pay tax on $1.00, it is based on the amount you won.

Good luck.

Dimitry K., Esq. and other Business Law Specialists are ready to help you
Customer: replied 4 years ago.
Other questions: Is it illegal for me to transfer the winning lottery ticket to a family member? Wouldn't this be fraud? Wouldn't this be unethical? Is there any way that the State of Maryland or IRS could link the winning lottery ticket to me when I file a return with gift tax?
Expert:  Dimitry K., Esq. replied 4 years ago.

Diana,

It is not 'illegal' for you to transfer the ticket, but you would still be the one liable for the taxes and the earnings. Plus the creditors could pursue the ticket, try to stop the transfer, and pursue the winnings directly because yes, this would be fraud. As for being unethical, that is not a legal answer--some things can be ethical but illegal or unethical but perfectly legal. That is more philosophy then a legal answer, and something that practically do not help. In terms of 'linking' the ticket to you, they can always view the tape of who actually purchased the ticket.

Good luck.

Dimitry K., Esq. and other Business Law Specialists are ready to help you

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