Are gambling debts a problem in bankruptcy?
June 21, 2012 Leave a comment
The short answer is that they can be. In general the bankruptcy trustees who oversee your case seem have the opinion that gambling debts are somehow frivolous, shady, or just not respectable and thus possibly not eligible for a bankruptcy discharge. The same trustees don’t blink an eye at credit card debts as long as they are aged (more than one year old) but they do seem to have something against gambling debts.
I believe that it is a belief that somehow gambling is not the type of debt that the bankruptcy system was designed to discharge. You are somehow acting irresponsibly in the eyes of a bankruptcy trustee if you engage in gambling and you borrow money to do so.
But wait a minute that is not the end of the story! The judges don’t always agree with them. Bankruptcy was designed to give debtors a fresh start and a relief from debts the cannot pay. Those debts come in many types and gambling is just another type of debt. They too should be dischargeable in bankruptcy.
I had a case years ago where a client had gambling debts and the trustees raised an objection to their discharge so I looked up what the judges at that time had ruled. To my surprise they seemed far more understanding than the trustees. The judges pointed out in a series of cases that gambling is a legal activity. Not just in Las Vegas but in casinos around the country. Here in San Diego we have many Native American casinos that are fully legal. Millions go each year to these casinos and legally gamble. There simply is no illegality about it.
If a debtor engages in an entirely legal undertaking then we can’t deny a debtor’s right to engage in it as well as borrow money to finance it like he would a car or clothes that he was buying. So if the debtor accumulates debt related to the gambling then that really is no different from him running up his credit cards for some other item. This is what I understood from reading a number of cases on gambling a few years ago.
There were a few caveats though. The debtor with gambling debts could not have run up his credit cards in anticipation of filing bankruptcy. One judge referred to this as a credit card “bust out” scheme. If this was the case then that could be seen as credit card fraud.
Credit card fraud occurs when a person borrows (charges) on a credit card with no intention to repay. That is why if you run up credit cards and then immediately file bankruptcy you probably will have a credit card fraud problem.
When you sign your card you signed that you will borrow money on the card but you have an intention to pay it back. That intention can change later though and you can find yourself in a position where you cannot pay. At that point you stop paying and possibly file bankruptcy.
The gambler then is just like the guy who charges consumer goods on his card except he gambles. As long as he believes he will eventually win and then pay the car back then there is no fraud because fraud is subjective. We may look form the outside and say that he will never win at gambling. His chances are great that he will lose. But if the gambler believes honestly (but unreasonably) that he will win then there is no subjective fraud.
So it is best to wait for some time after a debtor borrows money on a credit card to gamble. It will then look less like the debtor had any fraudulent intent. Any questions about gambling debts and bankruptcy should be directed to a knowledgable attorney.
Don’t forget that there is the gambling addiction problem too. It is possible that a debtor has an addiction to gambling. If the debtor is in treatment for this addiction and has ceased all gambling there is a possible argument there to counter any fraud charges. A good bankruptcy attorney can help you with these arguments.
I am a San Diego bankruptcy attorney. For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com. Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for free credit report and analysis!
For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at email@example.com.
Risk Free photo courtesy of Sean MacEntee. Roulette wheel photo courtesy of Zdenko Zivkovic.