Gauss Law Firm- Denver Bankruptcy Lawyers

Are Gambling Debts Dischargeable in Bankruptcy?

Gambling losses present a complex problem in bankruptcy. There is no specific law or rule which make gambling losses exempt from discharge in bankruptcy. Generally, you can get rid of them.

Bankruptcy courts used to find that gambling debts could not be discharged in a Chapter 7 bankruptcy.  But as more and more states legalize gambling, more and more courts are treating gambling debts just like most other unsecured debts and are allowing discharge.

A gambling debt creditor must file and win an adversary proceeding. If they do nothing in your bankruptcy case, then these debts will be discharged.

This is not to say however, that all gambling activity is going to forgiven in bankruptcy. If a person regularly and intentionally gambles heavily there are two general ways that creditors can attack those transactions.

The first is under  Bankruptcy Code section 523(a)(2)(A), which provides an exception to discharge for debts obtained by “false pretenses, a false representation, or actual fraud.”  These suits could be filed by casinos or banks or credit card companies if they notice that the debtor has been gambling. Say for example the debtor made a $2000 cash advance at a casino. To prevail here the creditor is going to have to show an actual intent to defraud as in the debtor knew there was no way he was going to try to repay the loan. Or, the creditor would have to show a long pattern of losing and irresponsibility with taking on debt to gamble, in order to show that the debtor essentially “should’ve” known there was no way to repay the loans.

The second code provision which can cause problems for gamblers is the “luxury goods” and “cash advances” exceptions to discharge.  Bankruptcy Code section 523(a)(2)( c) makes a debt non-dischargeable if the debts was for a “luxury good or service” or a “cash advance”  The luxury goods provision applies where a debtor takes on a consumer debt to a single creditor of more than $500 within 90 days of filing a bankruptcy. Cash advances for this purpose are defined as only those cash advances amounting to $750 or more and obtained by a debtor within 70 days of the bankruptcy filing. 

These two exceptions can sometimes be avoided with planning. Gambling losses within the previous year must be reported in the statement of financial affairs. But if a debtor has an unfortunate record with gambling it may be wise to wait 60 days to file, or to wait a longer period while the debtor undertakes some effort to repay. Everything is contextual with bankruptcy and gambling. Has the debtor ever won? Has the debtor made any effort to repay some of the borrowed funds? If the debtor has a serious problem with gambling, have they made efforts to get help? How much are the losses in comparison to the debtor’s earnings? Preparation is the key to success in any legal matter.