Are Gambling Debts Dischargeable In Bankruptcy?
Gambling debts are generally dischargeable in bankruptcy like other types of unsecured debts, such as credit cards and personal loans. However, there may be exceptions to the discharge of particular gambling debts under certain circumstances.
Gambling debts typically arise as credit card charges or as casino markers. The marker is essentially a line of credit advanced by the casino upon the completion of a credit application and credit check. The time period to repay each marker is determined by the marker denomination. To facilitate repayment, the marker typically includes the applicant’s bank account number. If the marker is not repaid the “check” is deposited for collection in the applicant’s bank. The marker may also include an interest charge if not repaid within the agreed time frame.
The bankruptcy code makes a debt presumptively non-dischargeable if it was for a “luxury good or service” over $600 incurred within 90 days of filing a bankruptcy petition, or if it was a cash advance over $875 that was an extensions of consumer credit under an open end credit plan obtained within 70 days of filing a bankruptcy petition. Because gambling debts could possibly be considered “luxury services” or cash advances, the best way to avoid this presumptive exception from discharge is to wait to file at least 90 days from the time the gambling debt was incurred.
The next exception to discharge hurdle to overcome is the exception to discharge for money or an extension of credit obtained by “false pretenses, a false representation, or actual fraud.” For the creditor to make the gambling debt non-dischargeable, the creditor would have to prove that the gambler incurred the debt with no intention of repaying it. The creditor has a very high burden of proof to satisfy to prove that the gambler did not intend to repay the gambling debt when it was incurred.
The judge will examine the individual facts and circumstances of each case. Incurring a large gambling debt while being unemployed or incurring multiple gambling debts over a period of time without making any attempt to repay them could be evidence that the gambler had no intention of repaying the gambling debt. On the other hand, regular repayment of previous gambling debts and a business reversal preventing the repayment of a particular gambling debt could be evidence that the gambler did intend to repay the gambling debt.
Other factors to be considered will include how much of the gambler’s total debts are gambling related, how recently the gambling debt was incurred, and whether the gambler reasonably believed the gambling debt would be repaid. A gambler may be able to persuade the court that based upon his gambling or non-gambling history he genuinely believed that he could repay the gambling debt at the time it was incurred, even if the statistical likelihood of repayment was poor.
The determination of nondischargeability is made by the bankruptcy judge in an adversary proceeding, which is a lawsuit within the bankruptcy case. Because these lawsuits are costly to bring and difficult for the creditor to prove (there are other elements besides intent that must be proved as well), adversary proceedings objecting to the discharge of gambling debts are not commonly brought.
All gambling losses within the previous year must be disclosed on the Statement of Financial Affairs, which is part of the bankruptcy petition.
Consideration should also be given to whether the non-payment of a casino marker could be considered a crime. Nevada apparently considers casino markers to be the legal equivalent of checks and the return of a marker for insufficient funds from a bank to a casino apparently could result in an arrest warrant and prosecution for writing a bad check.