Chicago Bankruptcy Question: What happens if I win the lottery after I file for Chapter 7?

Chicago Bankruptcy Question of the Day: What happens if I win the lottery after I file for Chapter 7?  The answer to this question, as is so often the case, depends on the the timing.

When you file for Chapter 7 bankruptcy protection in Chicago, all of your property is legally transferred into a bankruptcy estate.  A Chapter 7 bankruptcy trustee is assigned to your case and one of the responsibilities of the trustee is to administer the assets of your estate.  In the vast majority of Chicago Chapter 7 bankruptcy filings, all of the assets of the bankruptcy estate are protected by exemptions, so no property is lost.  If there is any non-exempt property, the bankruptcy trustee has the right to liquidate (sell) that property and use the proceeds of the sale to pay down or off your creditors.

After you file for Chapter 7 bankruptcy protection, you are required to disclose any assets that you acquire after the filing.  This includes any lottery winnings.  The trustee will have the right to take possession of these proceeds and use them to pay down or off your creditors as if you had won them before you filed for bankruptcy protection.  You are required to disclose these proceeds, both while your Chapter 7 bankruptcy case is open and for six months after the bankruptcy has been discharged.  Failure to disclose this new asset can result in denial of your bankruptcy discharge and prosecution for bankruptcy fraud.  If the proceeds are received more than six months after your bankruptcy discharge, they are yours to keep, but you should still contact your attorney to ensure that there are no issues.

This does not mean that you will necessarily lose all of the proceeds.  If the proceeds are more than the amount of debt owed, your bankruptcy attorney can generally negotiate with the trustee so that you only have to turn over enough to cover your debts and the anticipated expenses of administration.  Even if the proceeds are not that big, you may not lose them all.  The trustee opens the bankruptcy estate and gives notice to all of your creditors.  Your creditors, in turn, must file a proof of claim with the court within ninety days of the opening of the estate.  If they fail to file a proof of claim timely, then they are not entitled to payment.  After all of the properly filed proofs of claim are paid, along with the expenses of administering the estate, any remaining proceeds are then paid back to the filer.

This is a rare circumstance, however it is one that requires the representation of an experienced Chicago bankruptcy attorney should it occur.  A good bankruptcy attorney knows how to negotiate with the trustee to minimize the contribution of proceeds, object to claims that they believe are inappropriate and monitor the case to ensure that any excess proceeds are returned to the filer.  The Chicago Chapter 7 bankruptcy lawyers at Ledford & Wu have handled hundreds of "asset cases" under Chapter 7 and are experienced in dealing with the issues that arise in these cases.  If you are considering filing for Chapter 7 bankruptcy protection, the bankruptcy attorneys at Ledford & Wu are always willing to offer you a free consultation to discuss your options.

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