Gambling Debts Can Be Discharged in Bankruptcy

Gambling Debts Can Be Discharged in Bankruptcy

Gambling is a form of entertainment for some, but a serious addiction for others. Most people gamble for fun and know when to stop. But compulsive gamblers suffer from an addiction disorder and need professional help. In the past, bankruptcy courts regularly found gambling debts nondischargeable in Chapter 7 bankruptcy. Today, however, courts allow the discharge of gambling debts. Now courts consider gambling debts general unsecured debts like any other.

Gambling Debts Can Be Discharged in Bankruptcy -- Lee Legal -- DC VA MD

Generally, gambling debts can be discharged in bankruptcy

No code section in the Bankruptcy Code expressly precludes the discharge of gambling debts. That means that gambling debts can be discharged just like any other unsecured debts.

Gambling debt creditors must prevail in an adversary proceeding

Creditors owed gambling debts may file an “adversary proceeding” in the bankruptcy to challenge the discharge of their debt. Bankruptcy Code section 523(a)(2)(A) provides an exception to discharge for debts obtained by “false pretenses, a false representation, or actual fraud.” But these types of suits, historically filed by big-name casinos, are rare today.

“Luxury goods” and “cash advances” can pose problems

Bankruptcy Code section 523(a)(2)(C) makes a debt non-dischargeable if the debts was for a “luxury good or service” over $1,225 purchased within 60 days of the filing of the bankruptcy. That section also precludes discharge of cash advances over $1,225 obtained within 60 days of the filing of the bankruptcy. In most cases, you can avoid these exceptions by simply waiting the requisite period of time to file the bankruptcy.

Gambling markers can also bar discharge

All gambling losses within the previous year must be reported on the Statement of Financial Affairs. The bankruptcy trustees and court will determine whether any debt in your filing involves fraud. And bankruptcy trustees have broad powers to avoid transfers which appear fraudulent. Transfers for which the debtor received “less than reasonably equivalent value” is the basic benchmark for determining fraud under the Bankruptcy Code.

State laws in Nevada and New Jersey give rise to carve-out criminal check-passing liability for gambling markers. A marker is gambling credit issued usually to regular high rollers. Casinos may file an adversary proceeding if you renege on a marker or attempt to discharge it in Chapter 7 bankruptcy.

Talk to a lawyer

If you have disposable income sufficient to gamble but not to pay your debts, that can raise a red flag in a bankruptcy case. Call our office to schedule a free consultation if you are considering filing Chapter 7 on your gambling debts.

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About Brian V. Lee 566 Articles
Brian V. Lee provides bankruptcy, foreclosure defense, business turnaround, and litigation services to clients in the District of Columbia, Virginia, and Maryland. Brian was the Washington, D.C. state chair of the National Association of Consumer Bankruptcy Attorneys from 2016 to 2018.