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The Lottery Curse: Are Lottery Winners More Likely To Declare Bankruptcy?

Unless you were born into an incredibly wealthy family, you’ve probably daydreamed about winning the lottery at least once or twice. A large windfall of cash could get you out of debt, allow you to purchase a home, and maybe even enjoy an early retirement. But unfortunately, winning the lottery doesn’t necessarily mean freedom from financial difficulties for the rest of your life. Some sources go as far as to say that 70% of lottery winners end up declaring bankruptcy. More conservative estimates put that number at 30%– either way, a substantial amount of lottery winners end up in bankruptcy court. Read on to learn more about this interesting phenomenon, and if you’re considering filing for bankruptcy in Arizona (lottery winner or not), give our firm a call at 480-448-9800.

Bankruptcy lawyer in Arizona

The Odds Of Bankruptcy After Winning The Lottery

The chances that someone wins the lottery- especially a Powerball-type, astronomical sum- are minuscule. In addition to about a third of lottery winners ending up in bankruptcy court, lottery winners are also more likely than the average person to declare bankruptcy within 3-5 years of their big win. There is general advice among financial experts for lottery winners. For those who have the option, they should choose installments rather than a lump-sum payment. Lottery winners should stay out of the public eye to avoid potential scammers, thieves, users, and opportunists. Additionally, experts suggest that those who win the lottery continue working. This can maintain a sense of normalcy, help with the low profile, and make sure the winner has less free time on their hands to blow through their money. Unless someone won several million dollars, winning the lottery likely isn’t enough to be “set for life.”

So what are the reasons that lead so many lottery winners to file for bankruptcy? There are countless reasons that join together in any combination and lead to financial struggles. Some develop issues with or fall deeper into issues with drugs and alcohol. Someone who already had a problem with addiction would now have all the means to acquire their drugs and alcohol without regular concerns like a job and paying the bills. A lottery winner also becomes a prime target for financial exploitation by pretty much anyone. This includes family, friends, and random strangers. Someone who publicly comes forward about winning the lottery can expect all of their relatives, coworkers, and acquaintances to suddenly have great investment opportunities or need to borrow money for heart-wrenching causes. Some just believe that money is no longer an issue once they win the lottery and spend way beyond their means.

Should a Lottery Winner File Chapter 7 Or Chapter 13?

If someone wins the lottery and needs to declare bankruptcy less than a year later, it’s likely that Chapter 13 will be their only option. There are strict income limits for Chapter 7 bankruptcy, and your income will be calculated using your earnings from the 6 months prior. The primary way to qualify for Chapter 7 bankruptcy is by earning less than the state median income. Someone who has recently won the lottery likely does not qualify here. The next way someone can prove their income eligibility for Chapter 7 bankruptcy is by passing the means test. The means test is a balance of the debtor’s income and expenses. Only necessary and reasonable expenses can be used towards the means test, like student loans, child support, reasonable rent or mortgage, etc. If the number the debtor calculates using the means test is negative, they should qualify for Chapter 7 bankruptcy. There are also certain thresholds the debtor’s income can fall within based on the filing location and household size. Conducting the means test is not as simple as it sounds. If you are unsure about whether or not you qualify for Chapter 7 bankruptcy, let a professional check for you by calling 480-448-9800.

Chapter 7 bankruptcy is many debtors’ preferred choice for several reasons. Taking into account all the types of legal matters one could potentially be in, chapter 7 bankruptcy is relatively one of the shortest and simplest. It should take about 3 to 6 months from start to finish. Chapter 13 bankruptcy, on the other hand, will last either 3 or 5 years, based on the debtor’s income level. Chapter 7 bankruptcy clears unsecured non-priority debts. Chapter 13 reorganizes all debts into a payment plan with only a possibility of unsecured non-priority debts being cleared without payment at the end. However, a debtor can only keep assets that are protected by bankruptcy exemptions if they file Chapter 7. Some of Arizona’s exemptions are strict and definitely don’t cover substantial lottery winnings. Chapter 13 may allow a debtor to hold onto more of their assets while paying off debts under court protection from creditors. Chapter 13 offers other benefits that are unique from Chapter 7 bankruptcy. Call 480-448-9800 to schedule your free consultation to learn more.

Is It All Over After Bankruptcy?

Just because someone has declared bankruptcy doesn’t necessarily mean that they’re destitute. When used preemptively, bankruptcy can help a debtor get their finances back on track before creditor collection methods like lawsuits, wage garnishments, and repossessions. Bankruptcy is also widely believed to destroy credit, but that is all relative. Someone who has bad credit might actually see their credit score improve after declaring bankruptcy. However, bankruptcy debtors will be disqualified from approval for most home mortgages for 2 years after filing. They can be approved for new lines of credit much sooner of that- many will receive offers just days after their case is discharged.

Filing bankruptcy is always a serious matter, but it can be more serious when special factors are present, like being a business owner or working in the financial industry. Most types of businesses aren’t eligible to file for Chapter 13 bankruptcy. If a business owner declares Chapter 7 bankruptcy, they will lose the business. Chapter 11 bankruptcy provides provisions for small business owners but is filed by very few because of its cost and complexity. An experienced Arizona bankruptcy attorney can help a lottery winner, as well as any other person struggling with debt, determine if and which type of bankruptcy can help them.

Reputable & Reliable Arizona Bankruptcy Representation

You don’t have to win the lottery to benefit from the representation of a skilled Arizona bankruptcy attorney. Having knowledgeable legal counsel throughout the bankruptcy process can help you avoid pitfalls like asset seizures, delays and dismissals, adversary proceedings, and more. A bankruptcy attorney will make sure you get the most out of your case while incurring as few negative repercussions as possible. And you don’t have to win the lottery to be able to afford a bankruptcy attorney. My AZ Lawyers offers affordable payment plans that can start after your case has been filed. This allows you to pay for your bankruptcy after shaking off extra expenses like wage garnishments, credit card interest, and more. The best way to figure out all the advantages and disadvantages of declaring bankruptcy in your unique situation is to discuss it with an Arizona bankruptcy lawyer. To schedule your free consultation with an experienced member of our firm, call 480-448-9800.