Facing up to my debts
If only my debt came from reckless spending sprees or exotic holidays!...
What happens if I win the lottery while I’m in debt?
Many of us daydream about winning the lottery one day, and all the things we’d spend the winnings on. But what happens if you win the lottery while you’re on a DMP, IVA or have gone bankrupt?
The chances of winning the lottery are approximately 1 in 14 million. However, many of our clients still opt to try their luck in case their numbers come up.
However, what would happen if you were on an informal or formal debt plan and you won some unexpected cash? Well, it’s a hard one to answer concisely, as different debt solutions are affected in many different ways…
Is a debt management plan affected by a lottery win?
If you’re a in a debt management plan (DMP) and you win the lottery, you would be expected to repay all of your debt in full. Hopefully, this wouldn’t bother you too much if you found yourself a few million quid better off!
If you won a couple of thousand pounds, there’s a chance you would be expected that you pay some of this into the plan. This would depend on things such as how much debt you still owe and how this lines up with the amount of money you’ve won.
On a positive note, it does mean that your plan would end quicker than you first expected. Alternatively, you may be in a position to make full and final settlement offers on your debts. This is when you negotiate a reduced amount with each creditor to pay the debt balances off in one go.
What if you win the lottery while on an IVA?
An individual voluntary arrangement (IVA) is a legally-binding, formal solution. If you won a large sum of money while you were subject to an IVA, you’d be expected to repay your debts in full. Also, your creditors would be allowed to charge interest on the debts and you’d also be expected to pay the fees incurred in the IVA.
In Scotland, the equivalent to an IVA is a protected trust deed (PTD). If your situation was to ‘substantially change’ with a lottery win again you’d be expected to repay your debts in full. You’d also be expected to pay the fees incurred in the PTD and your creditors would be allowed to charge interest on the debts.
Once a person has officially been discharged from their PTD there’s no obligation to pay any more towards the debt.
How would winning the lottery affect bankruptcy?
It’s a bit more complicated if you’ve recently applied to go through bankruptcy (or sequestration if you’re based in Scotland).
If you’re an undischarged bankrupt you might want to think twice before playing your favourite numbers. If you won big, you’d be expected to:
- Pay your debts in full
- Pay any charges associated with the official receiver and the Insolvency Service
All of these charges would need to be justified but in many cases this could take a hefty chunk out of your winnings. You could then apply to the court to have your bankruptcy “annulled,” or cancelled. Once you’d informed the credit reference agencies about the annulment, details of the bankruptcy would be removed from your credit file.
If you were a discharged bankrupt you’d be fine to play the lottery as the official receiver can’t take any lump sum you receive.
However, if you invest the money and it generates an income they could put an “income payment agreement” in place. This might mean the interest your millions are earning is paid into the bankruptcy until the payment agreement ends (usually three years from the date you go bankrupt).
What about sequestration and the lottery?
Should you be based in Scotland and going through sequestration, you’d have to immediately notify your Trustee of any assets you’d acquire, or any substantial change in your financial circumstances. This would obviously include a lottery win.
If you didn’t do this, you’d be committing an offence and may be fined or imprisoned.
If you weren’t discharged at the time you won you’d be expected to pay the debt in full, plus the interest on the debt, and pay your Trustee’s associated costs and charges. Once these had been paid you’d be discharged.
One option available to Scottish bankrupts would be to apply to get your bankruptcy award ‘recalled’. You’d still have to pay all of your debt, plus interest and your Trustee’s cost and charges, but the recall would in effect remove any record of your bankruptcy (this might be important if you wanted to buy a house and need a mortgage).
For a period of four years from the date of your sequestration being processed, even if you’ve been discharged, you’d still have to notify your Trustee of your lottery win. Your trustee would expect you to pay your debt in full if you were to win a substantial amount of money or would look to make a full and final settlement payment to your creditors before seeking your discharge. This period is known as ‘acquirenda’.
Would a lottery win affect a DRO?
If you’re on a debt relief order, you’ll go through what’s known as the ‘moratorium period’. This lasts for 12 months, and should your situation not improve during this period your DRO is finalised and your debts are written off.
Should you win a large sum of lottery money during the moratorium period, your DRO would immediately come to an end. Once this happened, you’d be expected to repay your debts in full. If the 12 months had passed and your DRO had already been processed, you wouldn’t be expected to pay anything towards those debts included in your DRO.
With minimal assets process (MAP) bankruptcy (a Scottish equivalent of DRO, although not the same) your debt is usually written off six months after a successful application. However, you won’t be fully discharged for a further six months.
If you won a large sum of money within the 12 months after you’d successfully applied for a MAP, they would be obligated to declare this. You’d then need to pay off the debt in full and your MAP would end. Again, the acquirenda period would apply here. and you’d need to tell your money advisor if a win occurred within a four year period after the MAP completed.
Would a DPP be affected by a lottery win?
A debt payment programme (DPP) is a debt solution that’s available through the Debt Arrangement Scheme (DAS). It’s only available to people who live in Scotland.
If you were to win enough money to pay your debts off in full you’d be expected to do this.
If your lottery win wasn’t quite enough to clear the debts we could help you to make full and final settlement offer to your creditors. If all of your creditors agreed to the offer this would clear the balance and bring your DPP to an end.
For smaller wins, you’d be expected to pay what was affordable towards your debts. This would reduce your DPP term and would also mean that you’d be debt free sooner.
Luck be a lady tonight!
Despite our killjoy attitude to the lotto, let’s finish with a happy story: we once came across a client who got very lucky…
In October 2016, one of our advisors spoke to a lady who told us that she no longer needed our help. When asked to elaborate, the lady told us that she’d won the Lotto Millionaire Raffle. She won one million pounds and was able to pay off her debts in full.
This was a fantastic stroke of luck for the client, but she was an exception to the rule. The lottery isn’t a way out of debt.
Remember: Gamble responsibly, and if the fun stops, stop. If you’re dealing or have dealt with gambling issues, please don’t suffer alone. Visit our website for information on how to get support with gambling debt or addictions for you or your loved ones. You can also contact the gambling support charity Gamcare for help and advice.
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