There is an old saying in Bankruptcy: "Pigs get fat and hogs get slaughtered." This means when honest debtors take full advantage of available, legal exemptions to keep their property and protect their income, they get "fat." People that try to be hogs and keep more than what is permitted under the law may get "slaughtered" as the Court and U.S. Trustee may penalize them for violations of the Bankruptcy Code.
A great example of this saying can be found in the case of In re Vogeler. Mr. Vogeler was unemployed and about $47,000 in debt. Mr. Vogeler filed a
Chapter 7 Bankruptcy in Kansas seeking debt relief. Then, something great happened. Mr. Vogeler won the Kansas Lottery and received $90,000 in net proceeds! The Chapter 7 Trustee discovered this change of fortune and instructed Mr. Vogler to maintain the lottery proceeds. Unfortunately, Mr. Vogeler did not listen to the Trustee and spent his winnings on new cars and various, non-emergency personal items.
The Kansas Bankruptcy Court denied Mr. Vogeler's discharge and dismissed his case, explaining that he committed an abuse in the case. The Court reasoned as follows:
"First, debtor entered bankruptcy with approximately $47,000 of debt. Second, a month later, debtor received more than $90,000. Debtor, without explanation, opted to spend his lottery winnings on new items rather than attempt to address the debt with which he entered bankruptcy. Debtor enjoyed his lottery winnings at a time when the automatic stay kept his then-existing creditors from executing on his good fortune. Debtor failed to satisfactorily explain the dissipation of the lottery proceeds. Debtor has been shown to have had significant ability to pay his pre-petition debts."
The Bankruptcy Court denied Mr. Vogeler a discharge and said he was not an unfortunate debtor entitled to a fresh start. On the contrary, he was very fortunate to win the Kansas Lottery and could have repaid all of his creditors with the proceeds. The Court denied the discharge because it would have given the debtor a "head start" instead of a "fresh start."
Typically, a small bonus or increase to your income will not affect your Bankruptcy, like winning the lottery or receiving a large inheritance. However, any increase in income after your Bankruptcy is filed should be discussed with your attorney immediately. In Chapter 7, these new or additional funds may be subject to liquidation by the Chapter 7 Trustee.
In Chapter 13, the funds could lead to a modification of your
Chapter 13 Plan, resulting in a higher monthly payment to the Trustee.
To learn more about the advantages and disadvantages of Chapter 7 and Chapter 13 Bankruptcy, please the
Law Office of Nicholas R. Westbrook today. Our main office number is
(713) 893-6204. As aHouston Bankruptcy lawyer, I would be happy to meet with you in person and discuss your options. The road to financial freedom starts here.