We do indeed take on and help clients who have been sunk by gambling debts. Can gambling debts be discharged in bankruptcy? It’s a tough question but the short answer is yes.
Gambling is often the tip of the iceberg for debtors. Debtors who have gambling debt usually use up their savings, fail to pay important obligations like mortgages and car loans, and fail to provide for family members. Worse, some gamblers even put up their automobile as collateral to get quick cash. The act of gambling is now much more easier than before and creates more chances for a person to fall into debt.
In addition to real-life casinos; there is online gambling, horse racing and lotteries. Most of these forms of gambling are legal. Gambling has become one of the top forms of debt in North America.
The aim of the new bankruptcy laws was to make sure that debtors who could pay off some of their debts did in fact pay them off. Another aim of the bankruptcy laws was to prevent certain debts from being discharged because they are considered too important. Some examples of debts that cannot be discharged include student debt, obligations to pay for child support and some debts that are due to wrongful acts such as benefiting from a crime.
So the question begs, can gambling debts be discharged or do they have to be paid, in part or in full. We find that the concern is that gambling, to many, is an immoral act and the judicial system should not be encouraging immoral acts but the answer is that most, but not all, gambling debts can be discharged.
Also, since most gambling debts are not secured by any collateral, the debtor can usually discharge the debts completely through a Chapter 7 bankruptcy – provided the debtor passes the standard means test. The means test examines the ability of the debtor to pay off some of the debts after taking care of essential expenses for him or herself and the rest of their family members.
Part of the analysis of how to handle gambling debts is to understand how the debt actually occurs.
Quite often a debtor will borrow the money by taking a credit card cash advance. If the gambler wins, then he or she can pay off the advance. The advance can be through an ATM withdrawal or writing checks that the credit card company allows. But if the gambler loses, then the credit card company has to be paid. Failure to pay the credit card company will almost always result in collection activity against the gambler.
The second way a gambler incurs gambling debt is through casino markers. Here the casino lets the gambler borrow against the casino through a line of credit.
Section 523 (a) (2)(C) does provide some protection for the creditor to the disadvantage of the debtor. If the debtor files bankruptcy within 90 days of the filing of the gambling debt and the gambling debt is for over $500, then the gambling debt may not dischargeable. Cash advances of over $750 that are really extensions of credit that are made within 70 days of the filing of bankruptcy are also presumed to be debts that are fraudulent – and thus non-dischargeable.
Debts under these amounts or outside the time limits are presumed to be dischargeable although a creditor can prove, if applicable, that they were fraudulent. If the debt is fraudulent, then it cannot be discharged.
Debts that were incurred because the debtor misled or misrepresented his or her financial situation can also mean that debt is not dischargeable. Many addicted gamblers do lie to get money for gamble, so misrepresentation is a valid concern for any debtor who gambles. An example is a debtor who tells the casino he or she has the funds available to pay off the marker when he or she really does not have the funds.
In Chapter 13, a debtor propose a plan to pay off secured debts and non-dischargeable debts. Unsecured debts that are dischargeable can be paid with just a few cents on the dollar. If the unsecured gambling debt is not dischargeable because of the presumption of fraud or actual fraud, then the debtor can still pay the debt over time. In Chapter 13, the debtor has three to five years to pay off the debt.
There is a difference between fraud for purposes of bankruptcy discharge and actual fraud. Not paying a casino marker obligation may be illegal; the debtor then may be charged with an actual crime.
Bankruptcy will definitely not protect the debtor from criminal charges and the results of criminal acts. Other issues may apply that require that an experienced criminal defense lawyer be retained.
An experienced consumer bankruptcy attorney understands the ins, outs and nuances of relating gambling debts to fraud. Before filing bankruptcy for gambling debts, and any other debts our advice is to always consult with an experienced consumer bankruptcy lawyer before making any moves.