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Monday, November 3rd, 2008

by Theodore Sliwinski, Esq.

Gambling Debts and Bankruptcy

1. Can a debtor file for bankruptcy and “wipe out” his gambling debts?

Many of my bankruptcy clients are gamblers who could not control their destructive addiction. Incurring excessive gambling losses and gambling debts can often force a debtor to file for bankruptcy. In fact, in the official bankruptcy forms all debtors are required to if they have any gambling debts. In the statement of financial affairs, there is a specific question that  asks a debtor if he has any gambling losses. Gambling debts for the most part are dischargeable in a bankruptcy. In other words, you can discharge a gambling debt in a bankruptcy because they are considered to be unsecured debts, and they can be “wiped out” in a chapter 7 case. There are some scenarios wherein gambling debts may make your bankruptcy much more complicated. However, for the most part if a debtor passes the means test determines, and if there is no fraud or misrepresentation involved, then in most chapter 7  cases will wipe out any gambling debts. It is extremely important for a debtor to make full disclosure of any gambling debts in their bankruptcy petition. It is very common for a casino to file an adversary case to try to block a debtor’s bankruptcy. Therefore, a debtor must complete his bankruptcy with extreme care and list any and all gambling debts.

Atlantic City rakes in millions of dollars in taxes for the government, and it provides thousands of jobs to New Jersey-ites. However, there is no denying the proven fact that casinos also ruins the lives of many people. Gambling debts most often arise from cash advances on credit cards, casino credit, and casino markers. Whether gambling debts are from credit card cash advances, casino markers, or casino credit lines, they can usually be discharged in a bankruptcy.

2. Are credit card cash advances that were used for gambling purposes dischargeable in a bankruptcy?

In many cases addicted gamblers will generate money to gamble with by taking cash advances from their credit cards. When the gambler loses they are then faced with paying huge amounts of credit card debt. This credit card debt usually comes at a high cost because cash advances tend to accrue at a much higher interest rate at 25% or higher. Sometimes gamblers will also borrow from one credit card to pay another, while taking additional cash advances from other credit cards in the hopes they will eventually win enough to pay their deepening debt. This credit card cash advance gambling cycle can continue for some time until the gambler’s financial world eventually collapses. When it comes to this point the gambler can end up financially destroyed, and he very often must file for a bankruptcy.

3. Is a casino credit that was issued to a gambler dischargeable in a bankruptcy?

A casino credit is primarily used as a marketing tool by casinos and it is intended to generate revenues. Unlike government regulated lending institutions that offer consumer credit, the casinos don’t charge interest for the use of their funds. A casino credit is granted only to certain players and it is usually a signature agreement to pay the casino whatever amounts of credit is extended. The total amount that the  casino extends is called a gambler’s credit line. In the bankruptcy context a casino credit is treated like an unsecured signature loan, and it is most always dischargeable.

4. Are casino markers dischargeable in a bankruptcy?

A casino marker is an advance of credit to a gambler against funds on deposit or tied to a credit card. Sometimes, a casino marker is tied to a casino credit line or to a post dated check. If for example a player’s credit line is $10,000, then the casino will accept a check or checks totaling $10,000 from the gambler and agree to hold these checks until some date in the future. Check cashing privileges at a casino can permit a gambler to cash either personal or business checks at the casino cage. The casino will then deposit these checks into their bank account on the next business day or whenever the casino agrees to do so. Different casinos have different policies on checks. In the bankruptcy context it can complicate the case if the casino has deposited the check, or is holding the postdated check, and it then presses criminal charges for writing a bad check or issuing a check that was never intended to be honored. Bankruptcy also can’t stop criminal proceedings against you for bad checks.

5. What other type of gambling related debts can be discharged in a bankruptcy?

Besides credit card cash advances,  the casino credit lines, and the casino markers that sometimes secured by postdated checks, there are other types of debts that are also incurred for gambling purposes which are often seen in a bankruptcy cases. Payday loans, pawn shop loans, car title loans, and signature loans. Depending on the facts of a particular case along with the time frames associated, and whether or not the debts are secured or unsecured, will determine their dischargeability in bankruptcy.

6. I owe $75,000 to the casinos in Atlantic City. Can I file for a chapter 7 and “wipe them out?”

Yes, a chapter 7 case is considered to be a lucky number in the gambling world, and it is  also in the world of debt. If you have lost your job, suffered a serious a medical illness, failed in business, or if you are down on your luck because of any other financial setback, then your luck could change if you file a chapter 7. If the means test provides that you are eligible to file for a chapter 7, then you can wipe out your of your oppressive gambling debts.

7. What type of gambling debts will probably not be dischargeable in a bankruptcy?

Incurring gambling debts in casinos and potentially wiping them out bankruptcy is one concept, but incurring illegal gambling debts and attempting to discharge them in bankruptcy is another. You can’t discharge illegal gambling debts in a bankruptcy. The United States bankruptcy code cannot discharge debts that are incurred from illegal activities. Therefore, if you owe an illegal bookmaker, or an online casino tens of thousands of dollars and need debt relief, then bankruptcy can’t solve your problems.

Even though legal gambling debts may be wiped out in a bankruptcy, there are certain situations where such gambling debts might not be discharged in a bankruptcy. These are usually cases where fraud, deception, or criminal activity is involved. For example, if you go on a bad check writing spree at a casino days, weeks, or months, before the filing of the  bankruptcy, and then take huge credit card cash advances at a casino a few months before filing bankruptcy, or if you make material misrepresentations to obtain credit at a casino such as knowingly writing bad checks which induced the casino to extend you credit, then you could have serious problems trying discharge this type of gambling debt.

Additionally, any debts incurred 90 to 180 days prior to your bankruptcy filing will be carefully scrutinized. You have the burden of proof to show the debts incurred were reasonable and necessary so they can be discharged. If they are gambling debts it may be difficult to get them discharged. Likewise, if you have post-dated checks that  a casino is holding, or have returned checks that were issued to a casino, then you should contact an experienced bankruptcy attorney before you file for bankruptcy. There could be potential objections filed against your right to receive a discharge. Additionally, there may be  possible criminal charges depending on the amount of the checks, what state they were written in, and whether the casino claims you incurred the debt by fraud or deception, or has filed criminal charges for bad checks.

8. What can I do if I have gambling debts that I can’t pay?

If you have gambling debts, or if you have questions about gambling debts and bankruptcy, then please contact us. I may be able to help you. If you live in New Jersey and agree interested in filing for bankruptcy to deal with your gambling debts, then contact the New Jersey Bankruptcy Center for a free bankruptcy evaluation. Every case is different, so every case should be evaluated on a case by case basis, but whatever the case is, and whatever chapter of bankruptcy you may be eligible to file, bankruptcy puts you back in control of your finances on your terms. Don’t waste your life drowning in gambling debts. Get a fresh start today!