Can a lottery prize be considered non-exempt property and sold by a bankruptcy trustee?
In the current financial climate, many Americans are struggling to pay their bills. These people might look to personal bankruptcy for relief from overwhelming debt. In many situations, Chapter 7, or liquidation bankruptcy, might give them the best chance of getting back on their feet.
Chapter 7 bankruptcy is called liquidation bankruptcy because it requires that the debtor hand over non-exempt property to a bankruptcy trustee and the ownership of this property to be transferred to a bankruptcy estate. At this point, the trustee sells or liquidates the property in order to pay back the debtor’s creditors. The debtor can keep property that the trustee finds is not worth selling and is abandoned by the trustee. Almost any type of non-exempt property can be transferred into a bankruptcy estate, even lottery winnings, as is the case in a personal bankruptcy case coming out of the State of Michigan.
A 73-year-old Michigan man named Donald Magett has been collecting $1000 a month since winning on a Cash for Life game in 1984. As you might suspect, Magett is entitled to receive $1000 a month for life. At some point after his winning this prize he filed for personal bankruptcy. The main asset of the bankruptcy estate is the lottery winnings, which are currently being used to pay creditors. But, the trustee in this case has recently been granted the authority to auction off the lottery winnings. The sale will take place online and the bidding will start at $30,000. Therefore, if Magett lives approximately two and a half more years, the purchaser will have made money on the ticket (not considering taxes).
If you are considering filing for personal bankruptcy, and you have questions about exempt and non-exempt property, you should speak to an experienced attorney.