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Jun 2012After Bankruptcy: What If I Win the Lottery
Posted by Robert Weed / in Virginia Bankruptcy / 61 comments
People often ask me, what happens after bankruptcy if I . . .
Get a big raise…
Start a business…
Get a big tax refund in future years…
Become a reality star…
Win the lottery…
How does that affect my bankruptcy?
I tell them the purpose of bankruptcy is so that you CAN do those things.  (I like to joke that if you do win American Idol, you have to buy your bankruptcy lawyer a beer.)
The Supreme Court said in 1934, that the purpose of bankruptcy is to give you new opportunity in life and a clear field for future effort, unhampered by pre-existing debt. Â That’s still true in Chapter 7 bankruptcy, but not in chapter 13.
The purpose of bankruptcy is your new start. Â
That means:Â Money you earn after the date of your bankruptcy belongs to you. Â
It belongs to you “free and clear from the claims of all creditors.” Â (Except things like child support and most taxes, which survive the bankruptcy.)
Going back to 1913, the Supreme Court has emphasized that getting you a “fresh start” is one of the main purposes of the bankruptcy law.
“The power of the individual to earn a living…is of the utmost importance not only because it is a fundamental private necessity, but because it is a matter of great public concern.”
“The new opportunity in life and the clear field for future efforts … is the purpose of the Bankruptcy Act.” Â That’s what the Court said in 1934.
The court repeated it in 2007. “The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor.””
If you qualify for a Chapter 7 bankruptcy, that purpose applies to you. Â For you and your family, and for the public, it’s important that you are allowed to keep the fruit of your labor after bankruptcy.
In Chapter 13 bankruptcy, a different rule applies. Â
Chapter 13 is a payment plan.  You work out with the court a payment plan for the benefit of your creditors.  The court approves that payment.  The bankruptcy law says that the court’s approval is the final word, for you and the creditors.
Except, that it’s not really final. Â In Chapter 13, the payment approved by the court can be increased if there’s a big change in your financial picture. Â (The legal term for big change is a substantial and unanticipated. )
So how much is “substantial”?  And what’s “unanticipated”?  The Fourth Circuit–the big guys between Virginia and the Supreme Court–are the people who laid down this big change rule.
The Fourth Circuit are the big judges between Virginia and the Supreme Court. They say your Chapter 13 payment can increase if there’s been a big change in your finances.
They said a fellow named Arnold had a big change.  Arnold’s income increased from $80,000 a year to $200,000 a year.  I agree that was a big change.  (That was back in 1989–when $200,000 was really a lot of money.)
They also said a guy named Murphy had a big change.  Murphy valued his condo in December 2003 at $155,000 and then sold it next November for $235,000.  I agree with them on that, too.
Recently, I’m seeing smaller changes now count as substantial and unanticipated. Â One reason is the 2005 bankruptcy law.
Before 2005, most people in chapter 13 were in it for three years.  In 2005, Congress required five year Chapter 13s  for most people in Northern Virginia.  (Both parties supported the 2005 bankruptcy law, but it was mostly strongly supported by the political party that likes to claim they are the party of “incentive” and “individual initiative.” )
That extra two years can really make a difference on what’s “substantial” and “unanticipated.”  Recently, one judge here raised a couple’s payments by $1750 a month in the final year of their five year plan.  Both the husband and wife are Federal employees.  In four years, he had two step increases and she moved up one GS Grade.  Is that an unanticipated change?  I didn’t think so, but the judge did.
I’m in a fight right now with the chapter 13 trustee–because one of my client’s did win the lottery–he won $20,000. Â The Chapter 13 trustee wants that $20,000. Â And not just this year–and he wants the extra $20,000 for the next three years!!! Â (Apparently the trustee thinks my client will keep winning. Â My client says the $20,000 all went back into lottery tickets and none of it is left.)
What’s the lesson? Â One lesson is small improvements over three or four years can be enough that the judges here count it as a big change. Then you get hit for a lot bigger bankruptcy payment.
The big lesson:  If you think you are going to … get a big raise … start a business … get a big refund … become a reality star … win the lottery … you need to avoid Chapter 13 bankruptcy!
If you can get approved for a Chapter 7 bankruptcy, you get a new start in life and a clear field for the future.  You are unhampered by the pressure and discouragement of pre-existing debt.  If you get stuck in a Chapter 13, you don’t have incetive to better yourself.  A small raise is ok.  But if you get a big raise, or several small ones, the bankruptcy trustee will try to take it from you.
In Chapter 13, don’t labor too much.  If fruit of your labor is too “substantial,” it’s grabbed by the bankruptcy court.  At least here in Alexandria, Virginia.
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Robert Weed has helped fifteen thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.
SERIGNE
Hello,i filed bankruptcy in june and my 341 meeting was on july 20th,and two days ago i open a saving account with citibank online but i haven’t make a deposit yet to the account.So what i wanna do is start doing direct deposit for my bi weekly pay from my job but i don’t know if that’s gonna affect the bankruptcy procees and just to clearify am located in nyc.Thank you
Robert Weed
Serigne:
No need to worry. The only way it would affect your bankruptcy process is if you told the court you’re making $40,000 a year and your direct deposits were more like $10,000 every two weeks. Even then they are not likely to to see your after 341 meeting bank statements unless someone rats you out.
Assuming you told the truth about where you work and what you are making, there’s no reason to be concerned about opening a new bank account.
Enjoy your new start.
(I tell my clients that they they do win American Idol, they are required to buy me a beer.)
Mark Hedtke
Mr. Weed,
Thank you for posting so much useful information and help on your site regarding Charter 7 bankruptcy. Today is September 23, 2012 and I still have a question though. Once you have a Discharge of Joint Creditors under section 727 of Title 11 USC as we do, dated June 26, 2012, that was filed in a Report of NO Distribution by the Trustee of the U.S. Bankruptcy Court on April 27, 2012, is there a certain number of days we would still be obligated to repay these debts under certain circumstances? Someone told me that after 180 days don’t worry, however is that from the June or April date? The reason we ask is concerning my father’s health and his concern if his health takes a turn for the worst. We are naturally concerned with him staying well for many years to come, yet he has raised the question concerning our bankruptcy and tax implications. At this point I don’t really know what to tell him. We just tell him not to worry as he generally is a strong man and will live a long life. He insists he needs to know, thus our inquiry. Thank you for your reply.
Robert Weed
Mark:
Good question. The bankruptcy court gets money you inherit within 180 days of the bankruptcy FILING date. Based on the dates you gave me, I’m guessing the case was filed in mid to late March. So the 180 days probably ran out last week. Check your papers for the filing date…and tell you dad no need to worry.
Maryann
Just wondering you say bankruptcy filing date not dismissal date? is this correct.
Robert Weed
For Chapter 7, yes.
Janice
Mr. Weed,
Thank you for the resourceful info posted on this site.
My Chapter 13 Bankruptcy was confirmed in August 2012. The total amount claimed was $327,677.27 of which the secured amount was $295,302.03 and the non-secured is $32,375.24.
I recently found out that I won $50,000 in the lottery. Am I expected to turn over the entire $50,000 to the Trustee or just the non secured amount of $32,375.24?
Thanks
Robert Weed
Janice:
Well there’s an argument that can be made that you don’t need to turn over anything–or the $32,375.00 or possibly something else. I don’t know for sure how my judges here would feel about it–although I have a guess. No idea what your judge thinks. What’s your own lawyers best guess?
Alice
Today I got a curtousy copy from the Debtor for a garnishment summons to show in court on Feb 28. He filed it on Jan 17th. *Should the COURT have sent me a notice earlier? and could i challenge the court for a later date since the court did not provide me with a summons on my door or a sherriff or anything? *Do I HAVE to show as i make less than $2K and it’s ALL Military retirement pay that I get by check, not bank? (I am in the processes of gathering money and filling out forms for a bankruptcy lawyer but it will not be in this short notice time for a lawyer to stop a garnishment procedure on Feb 28. *Also when the debtor finds out that my money is retire pay only and not in the bank, what other steps could he do to collect any dept from me until my bankruptcy proceedings kick in gear? I have no other funds except for 2012 taxes that i haven’t filed yet (way under $600) to be sent via check, can he get his hands on that? Thank you for your help!
Oh, also, I’m sure he will win a judgement on seizing my zero balance bank account. Does it go immediately into effect with the bank or is there a 10 day review from the court or bank? Is something like a red alert sent to the IRS too?
Robert Weed
Alice:
A garnishment summons garnishes a specific person or company who is holding money for you–like your bank account or your boss. That company is supposed to turn that money in on February 28. If they’ve hit a place where you had a lot of money–then you really need to get back to your bankruptcy lawyer and get going. If they hit the wrong boss, or an empty bank account, then you have some time to work with. But if its a garnishment summons, you don’t have to go to court–and if they hit a place where you don’t have much money, you don’t want to.
(Now if you are reading this wrong and you have a Summons to Answer, then what I’m telling you here about GARNISHMENTS is not right. If you have a Summons to Answer, read what I say here. https://robertweed.com/blog/virginia-bankruptcy/before-bankruptcy-can-i-go-to-jail-if-i-ignore-this-summons/.)
Curious
I am not sure that nothing has to be done. We did already file a bankruptcy, and are awaiting Chapter 7 discharge. However prior to our filing, just few months prior, our bank held our bank account containing less than 200 dollars, and it happened over the weekend, and we never ever received any notices until 5 days afterwards, when we made the bank send us notice. And we did have to go to court, and file exemptions. Then we had to fight the bank until they released the funds. And they bounced few payments that we made with that money. Even though we did not know when we were using bank account to pay. That resulted in very high bounced payment fees. Banks are crooks, therefore do go to court and file exemptions. Read your states exemption rules, and get legal system involved. Otherwise the banks and collectors will take you for a ride.
Robert Weed
Curious:
Good advice. you do need to stand up for your rights, and NOT assume banks are treating you fairly, because often they are not.
Alice
I read your article about filing your taxes in March to avoid the $5K threshold. My 98 Mustang is probably at or just under $2K and i would be getting less than $600 return for 2012. I am a homeownwer w/ mortgage and my HLOC is maxed out (can they touch my HLOC?) SO, if I want to file for Chapt 7 in MAR-APR, am I required to file my 2012 taxes anyway to show it to the court that I am current on taxes? Thanks again for your informative articles!
Yorktown resident
Robert Weed
Alice:
They will want to see your 2012 taxes–the law requires it. But if there’s only a small refund and an old paid for car, they won’t be interested in either of those. You’ll be able to keep them.
Jeff
I am currently in chapter 13 this will be my second year when Oct comes. I have an opportunity to have some overtime, that could amount to about 3000 a month if I want to work it. Because this is overtime and is not guarenteed, do I need to let my trustee know that I am working this and what will this do to my bk…can I pay this off early…and why do I have to give them anything over 1500 of my taxes?
Robert Weed
Jeff:
Different judges take different sides on that question. I know where I come down, but I’m not a judge.
Kiesha Martin
I just filed Chapter 13 bankruptcy and they have given me a payment plan for each month. I have an opportunity to get a better paying job, will my payments increase? The difference in the jobs is about $20,000 a year so if they do go up will it be substantial? Not sure if I should switch jobs or not, If the payment goes up then it won’t do me much good to make more money!
Robert Weed
Keisha:
The answer to your question depends on your Chapter 13 and your local judge. Here in Alexandria the rule until a few years ago was “a deals a deal.” Based on the actual situation at the time the bankruptcy was filed, a payment plan was put into place. Unless somethign really strange happened–salary more than doubled–the payment stayed the same.
But a few years ago we got a new trustee, and now it’s three years of mud wrestling. Almost any change and he’s running back to the judge to grab more.
I really can’t guess what the rule is where you are…it could be anything.
Sandy viveiros
If I’m filling chapter 13 will I be able to cash out my vacation money? It won’t be filled till next week. If I do it after I file will I be able to keep it with out paying more money? I can cash out $650-$11,000. What will happen and what should I do?
Robert Weed
Sandy:
If you were my client I’d tell you, DON’T DO IT!
Mark Maher
Mr. Weed, how would a substantial income increase affect a Chapter 11 after confirmation but prior to consummation for a small business debtor? And, Could the small business debtor sell real estate property without concern of additional distribution to creditors?
Robert Weed
Mark:
I’m not a Chapter 11 guy, so I don’t know the answer to that question. Sorry. Are you doing a Chapter 11 without a lawyer? Wow!
Vicki Kelly
Hello Mr. Weed;
You were our lawyer and our Chapter 7 was discharged on Sept 10, 2012. My question is, do we have to wait until Sept, 2014 or Sept, 2015 to purchase another home?
r/
Vicki Kelly
Robert Weed
Vicky:
If you did NOT have a home in the bankruptcy, you are eligible two years after the discharge under current regulations. That would be September 2014. Whether you can get a loan depends on your credit score and income but the regs allow it after two years.
lillian martin
i hAVE been paying bankruptcy for two years next february how long do i have to wait till i can start my own business .
Robert Weed
Lillian,
Sorry but I don’t know…are you in a three years Chapter 13 or five year? And how hard does your court looked at improved income? I don’t know the answer to either of those.
Denise Stowell
We have one more year left of paying a five year chapter 13 bankruptcy off. Once it is paid off does it matter if we change jobs and make more money or win the lottery?
Thank you,
Robert Weed
Denise:
Right. Once you are done paying your Chapter 13, then it doesn’t matter if you get a better paying job–or win the lottery. then you finally get a clear field for the future.
Jackie Campbell
I am currently in a Chapter 13 Bankruptcy. Have recently found out that I can start collecting Social Security from my ex husband. Will this affect my current monthly payment? So glad that I found this site.
Robert Weed
Jackie:
At least to me the law is clear the Chapter 13 trustee can’t get your social security.
One Judge here said they could–it was appealed and the 4th Circuit said that the Chapter 13 trustee can NOT get social security. So that’s the law for Maryland, Virginia, West Virginia, North and South Carolina.
I know it’s still a gray area in some places.
Misty
We are two days from being discharged for chapter 7. My lawyer called today and said the trustee stated she would dismiss our bankruptcy unless my husband could provide a signed letter frim his employer stating that he would not be given any additional overtime. Is this legal? I feel as if we are being bullied and singled out because, we are very close to the income limits for chapter 7. The trustee postponed our discharge once because she stated our lawyers did not get her paperwork in a timly fashion.
Robert Weed
Misty:
To me the law is clear that your Chapter 7 eligibility depends on the past six months–so whether your husband gets more overtime in the future has nothing to do with it.
Now maybe there’s a reason to suspect your husband has been hiding his overtime. Maybe the judge where you are sees the law differently than I do. I don’t know. If your lawyer won’t for you, I don’t see how you can fight it. Get the letter!
Linda
We are currently 2 years into a Chapter 13 five year plan and are paying back 100% to our creditors. My mother passed away May 30th and I will receive an inheritance from her estate within the next year (around $50,000). Will the trustee take this money and put it towards the plan, thus paying the plan off early? Or will we be able to keep the inheritance and continue with the current payment plan?
Robert Weed
Linda:
Here, in Northern Virginia, I’m pretty sure that you would keep the inheritance and keep paying over the five year plan. That’s because the judges here are clear that you cannot be forced to pay off faster than five years (unless you volunteer; once you volunteer, you may be stuck.) And also because in our Chapter 13 plan, property of the estate “vests” back in the debtor.
If the vesting provision in your plan, wherever you are, does not “vest” the property in the debtor, than I’d think the inheritance comes directly to the Trustee and he can use the money to just pay everything off.
But there’s room for argument on all sides of that issue, so I certainly can’t tell you for sure what should or will happen. But if you look at your plan and see if the property of the estate “vests” back in you, then you definitely have a better argument than if it doesn’t.
michelle powell
I filed bankruptcy on Feb 2014 and all my debtor’s were insecure but my truck was secured I make minimum wage and have four kids they garnish my check for 195 a month one of my debtor that’s a insecured debtor took my income on may 21st and have not gave it back yet is it OK for them to do that are not I live in ga
Robert Weed
Michelle:
From what you say, it doesn’t sound right to me. Have you asked your lawyer, or the bankruptcy trustee?
Linda
We filed Chapter 7 Bankruptcy in Dec. 2013. We went to court on Jan. 21, 2014. We received the Discharge letter with final date of March 31st, 2014. My Mom died on March 14th of 2014. My sister is the executive of the estate. No money has been dispersed. Not sure if there will be an inheritance after my Mom’s debts are paid. And if so it will be divided between 3 sisters. I’ve been told that we have to wait 6 months before we can receive an inheritance. My question is do we have to receive a letter from the courts to officially release us? Or can we just assume that after the six month period being Oct. 1st, 2014 that we will be able to receive the inheritance if there is one. I live in Georgia. Thank You for your help with this question.
Robert Weed
Linda:
You are REQUIRED to tell the court that mom died. You need to talk to your lawyer about how you are going to handle it.
Lucretia Phillips
I filed for chapter 7 and had my 341 hearing with the trustee July 14,14 when will I get my discharge papers, Also my employer settled my Workmens Compensation case but at the time of the 341 hearingI ddidn’t receive check. I didi receive it at the end of July however I have not cashed it ($60000). Once I receive discharge papers how long do I have to wait to cash it? I have to move from my apartment because I don’t have the finances to pay bills. I’m in Pa. Please help
Robert Weed
Lucretia:
Did your bankruptcy papers show that you had the money coming? If they did, you have no issue–whether you cash the check has no bearing on whether you HAVE it. If you didn’t, then you are lying to the bankruptcy court. You should talk to a lawyer there in PA. It might be a problem, it might now.
Mike R
Mr. Weed
My wife and I are about to file for Chapter 13; with about $77,000 secured IRS and $33,000 unsecured debt. Monthly payments are scheduled to be $1875 per month for five hears.We are in our fifties and retirement for both of us
will be in about five years. With or without the bankruptcy I was planning to incorporate and run a home based online
business. I have the intent of keeping the new “person” completely seperate, with the assistance of a very knowledgeable
account. My hope is that by keeping the LLC COMPLETELY seperate from my personal finances I would be able to keep all
revenues generated from the business in the business without drawing any payout to me for at least thirty-six months.
At that time I hope to offer a settlement proposal; also realizing the trustee may want 100%. Thats OK wih me. I don’t mind
paying my debts-Just don’t exile me into involuntary poverty. I still have people in my life who depend on me. Any thoughts
THANKS
Robert Weed
Mike:
Thought one: Talk to your lawyer!
Thought two: If you have an LLC, that profit, and activity, is going to show on your personal return. I don’t know how you can set it up as an LLC and keep it completely separate. I’m thinking your tax accountant is thinking of something other than an LLC.
DianeO
A question about “What if I win the Lottery?” When you say “Money you earn after the date of your bankruptcy belongs to you” is that the date of filing? Or the date of discharge?
Thanks!
Robert Weed
Diane:
Date of filing. If we’re talking about Chapter 7. There are exceptions for inheritances; and property that get divided in a divorce.
Fred
I am in chapter 13 bankruptcy which just got in mar. 2015. I want to get involved in a MLM like viridian. If I make any money, must I report this to the courts? If iwanted to convert to chapter 7, do I have to pass the means test?
Robert Weed
Fred:
Different courts see that different ways. You need to ask your lawyer.
KC
My chapter 7 was discharged in 2009 (25k debt) and i just won a personal injury lawsuit (375k) that was started in 2013 .My lawyer notified my trustee and they reopened bankruptcy case january 2017. The payment was made to bank estate in april 20th. How long will a trustee hold the money after paying the creditors off. Thank you
Robert Weed
KC
I’d guess maybe seven or eight months is what it might take around here. Your court might be faster or slower.
KC
They notified creditors their claim for assets due date was march 14th so with the money already allocated to trustee (chicago) from lawsuit why would trustee take 7 or 8 months if you dont mind me asking? Seems like the 20 creditors would be paid a lot quicker and the rest be turned over well ahead of that. I appreciate your reply so quickly…Thank You
Robert Weed
KC: Based on what you told me now, maybe 5 or 6 months from March 14. The judge has to approve the expenditures. And the Justice Department (US Trustee) has to approve them in most courts before the judge does. All that takes time.
KC
Thanks for your help. Much appreciated
Melissa
I filed for Chapter 13 on December 15th 2015 we were just over the amount to be able to file chapter 7. Anyways, I was in a fight with social security on a couple of my kids SSI cases. We appealed in Feb 15, 15 and we lost this past November, 2017. They are saying we owe over 18K from each kiddos receiving benefits from Feb 15, 15 to November 2017. Do we have to pay that? Can it be added to our chap 13? I called my attorney but she has yet to get back to us. I was told that for sure the Feb 15-Dec 15 payments can be added but I’m unsure about the rest of the payment we received?
Thank you.
Robert Weed
Melissa:
Your attorney can answer that better than I can, sorry.
amy hansem
A friend owes me 60,000.00 I obtained a judgement and order to have his wages attatched. Before that occurred he filed for chapter 7 bankruptcy. He barely based the means test presumption of abuse. On jis schedule 1m he shows a significant increase 800 dollars a month raise. Does he not have to adjust for this increqse? Doing so would force him into a chapter 13
Robert Weed
Sorry Amy.
I always take the consumer side. Your “friend” might be one of my clients, so I can’t give you any advice.
KimMa
Hello Mr. Weed,
I just recently filed Chapter 7 in September, and I am awaiting the discharge. I have been with the same employer for almost 2 years now. I just found out a couple of days ago that they were supposed to be paying me $3.00 more per hour. I am expecting my owed wages, totaling around 6K. Will this affect my case? Will the trustee take my money even though they are owed wages? Thank you.
Robert Weed
KimMa:
Depends on your state law. In Virginia they could take AT MOST 25% of it. Don’t know where you are, sorry.
John K
Me and My Ex-Wife Filed Chapter 7 on July 2nd, 2018. Our Divorce was Finalized on July 20th, 2018. In the divorce settlement I was awarded $8,800 in equization. We have a meeting the the creditors on August 23rd, 2018. My wife is suppose to have the money ready for me in a week or 2. My question is if I were to put that money into my bank account will the creditors be able to take it, or should I hold off on depositing it until after the meeting?
Robert Weed
John:
Doesn’t sound like you are in Virginia. Here the meeting of creditors comes sooner that what you are describing. I wonder why did you file with your wife if you were getting divorced two weeks later?
Looks to me like the $8800 was coming to you when you filed bankruptcy on July 2 even if the divorce wasn’t “finalized” until July 20. In that case you would have been required to disclose to the court in the papers you filed that money was coming to you. Depending on the laws where you are, the bankrutpcy trustee might be able to grab it.
NOT putting the money in the bank doesn’t change the law on whether it was already coming to you on July 2. However, not putting the money in the bank MIGHT turn an innocent mistake into an intentional lie. And lying to a court can be a serious problem.
What does your lawyer say?
Clarissa Jeffers
if I filed bankruptcy and discharge was august 28 2017 when can I apply for a habitat humanity house perfect date to apply
Robert Weed
Clarrissa:
Sorry I don’t know. Two years would be my GUESS.