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Winning Big Can Lead To Folks Filing Bankruptcy


When Lisa Arcand won $1 million in the lottery she thought it was a dream come true. She bought a home and new furnishings, took a couple of vacations, enrolled her son in a private school and opened a restaurant.

Then, she says, the reality set in.

Arcand, a single mom, said "Winning the lottery is not all it's cracked up to be. Actually, it's been very depressing."

It has been less than four years since Arcand won big on a scratch off lottery ticket, and she is closing her dream business, the restaurant that she opened with her winnings only five months ago. She says she used up all her savings to open the business.

Sadly enough, many lottery winners find themselves broke, in debt and even filing bankruptcy after the money is gone. Susan Bradley, a certified financial planner who runs a practice that specializes in helping people who suddenly come into money, says that many lottery winners end up worse off financially than before they won.

Bradley says, "A lot of people who win are financially OK when they win. You hope they become really financially secure after they win. But many are in a worse position after winning because of financial commitments. It's not unusual for them to start borrowing, and that's how you get more into debt."

According to Chelmsford wealth counselor Szifra Birke, roughly one-third of lottery winners find themselves in serious financial trouble or in bankruptcy within five years of turning in their winning ticket.

Birke says, "For many people who come into wealth suddenly - whether they win the lottery, receive an insurance settlement or an unexpected inheritance - if they have not acquired good money skills prior to this windfall, often they struggle and make poor choices. If someone is in trouble financially, if they're spending more than they are making or are relying emotionally on the lottery to bail them out, then that's a big problem."

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There is often serious financial trouble if a person who suddenly comes into money has no concept of money and spending and decides to splurge with reckless buying binges. There is almost a certainty of bankruptcy in the forecast for people who decide to use their winnings to start a new business. This is true because having money does not make you an expert at handling it, nor does it give you specific knowledge that you would need to go into business for yourself.

"If a person is not business savvy, they don't know what it takes to run a business - $300,000 could disappear very quickly," Birke said. "You have to really understand the true cost of things. If you make a purchase (on your credit card) that costs $50 and it takes you two years to pay it off, you spent a lot more than $50. Sometimes people just don't compute the numbers."

Robert Glovsky, director of Boston University's Program for Financial Planners and president at Mintz Levin Financial Advisors says that the best thing to do if you suddenly come into a large sum of money is to hire someone with expertise handling money. That makes sense, right?

Glovsky said, "On the positive side, the lottery allows winners to do things they could never do before, whether it's consumption or charity. But what happens when the money runs out? Do they return to their old lifestyle? I would think that would be very difficult."

p>He says that a good financial advisor can help put the realities into perspective.

That advice would have been great for Arcand, but instead of getting in touch with a financial advisor, she was contacted by a company that actually takes money away from lottery winners.

Shortly after she won the lottery in April 2004, Arcand said she was aggressively pursued by a cash settlement company. She says that Stone Street Capital, a financial services company, offered her a lump sum of money up front in return for all or a portion of her $35,000-a-year lottery proceeds.

"They call people who hit the lottery and offer to buy the ticket off you," she said. "The offer was less than half the cash value. But I sold a piece of it - $15,000 a year, and I got $200,000 up front."

Getting the lump sum payment up-front helped Arcand buy some of the things she'd never been able to afford, but it also put her in a higher tax bracket, which led to a further erosion of her winnings.

"They don't tell you all this," she said. "You end up with this little bit of money, and then you lose."

A spokesman for the Massachusetts State Lottery, Dan Rosenfeld, said the state is aware of these companies and advises winners to be wary of dealing with them, or anyone else, for that matter.

Rosenfeld said, "We have a whole list of groups that will buy your winnings. We say, "Be careful, and only talk to who you want to talk to."

People who win the lottery are often given advice by lottery officials about how to handle their new-found wealth. Some of the best advice is for the winners to get a lawyer and a financial adviser. And that may be the best way to avoid making mistakes that could lead to bankruptcy.

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