Gambling Debts and Bankruptcy: What You Need to Know

Whether you can discharge gambling debts in bankruptcy depends on when the gambling happened. If the gambling occurred within 90 days before the bankruptcy was filed, the gambling debt would be non-dischargeable. The debtor is still responsible for the gambling debts even after filing for bankruptcy.

Can I Gamble During Bankruptcy?

It is fraudulent for debtors to sink their money into gambling if the debtor intends to use gambling to deprive creditors of money. When a debtor gambles during bankruptcy, all of the debts become non-dischargeable. Therefore, the debtor will have to pay all debts post-bankruptcy, not just gambling debts.

Do I Have to Report My Gambling Debts?

Yes. The debtor must satisfactorily explain all assets. If you lost money to gambling, you must report that loss, or your debts could become non-dischargeable.

Discharging Gambling Debts in Bankruptcy

Gambling is often just the tip of the iceberg for debtors. Those with gambling debt usually blow through their savings, fail to pay their mortgages and car loans, and do not provide for their families. Some gamblers even put up their vehicle as collateral for quick cash. Gambling has become much easier than before, making it easier for individuals to get into debt.

Along with real-life casinos, there are online casinos, horse racing, and lotteries. These forms of gambling are generally legal. Gambling has become one of the leading causes of debt in North America.

Can I Discharge My Gambling Debts?

A major goal of the new bankruptcy laws was to ensure that debtors who could pay some of their debts did so. The second purpose of bankruptcy laws is to prevent certain debts from being discharged as they are deemed too important to be discharged. Students loans, child support obligations, and debts due to wrongful acts, such as benefiting from a crime, cannot be discharged.

Can gambling debts be discharged, or must they be paid in part or in full? The majority of gambling debts can be discharged.

Additionally, since any collateral does not secure most gambling debts, the debtor can usually discharge the debts completely through Chapter 7 bankruptcy – provided that the debtor meets the standard means test. The means test looks at the ability of the debtor to pay off some of their debts after taking care of necessary expenses for themselves and the rest of the family.

Debts Incurred Through Fraud and Gambling

When analyzing how to handle gambling debts, it is important to understand how the debt actually occurs.

Debtors often borrow money by taking out a credit card cash advance. Gamblers can pay off their advances if they win. You can withdraw cash from an ATM or write checks if the credit card company allows it. However, if the gambler loses, the credit card company must be compensated. In almost all cases, failure to pay the credit card company will result in collection activity against the gambler.

Casino markers are the second way a gambler incurs gambling debt. The casino lets the gambler borrow against it through a line of credit.

In Section 523 (a) (2)(C), the creditor is protected to the disadvantage of the debtor. If the debtor files bankruptcy within 90 days of filing the gambling debt and the gambling debt is for more than $500, the gambling debt may not be dischargeable. Likewise, cash advances of over $750 that are actually credit extensions made within 70 days of filing for bankruptcy are presumed to be fraudulent debts and are therefore not dischargeable.

Generally, debts under these amounts or outside the time limits are dischargeable, although a creditor can prove they were fraudulent, if applicable. Fraudulent debts cannot be discharged.
Similarly, debts that were incurred because the debtor misrepresented their financial situation may not be dischargeable. Gamblers who are addicted tend to lie to get money for gambling, so misrepresentation is an issue for any debtor who gambles. One example would be a debtor who tells the casino they have the funds to pay off the marker when, in reality, they do not.

Chapter 13 Help

A Chapter 13 debtor proposes a plan to pay off secured debts and non-dischargeable debts. Dischargeable debts can be paid for just a few cents on the dollar. Even if the unsecured gambling debt cannot be discharged because of the presumption of fraud or actual fraud, the debtor can still pay the debt over time. Under Chapter 13, the debtor has three to five years to pay off the debt.

What if the Gambling Was Criminalized?

Fraud for bankruptcy discharge purposes differs from actual fraud. A debtor may be charged with a crime for not paying a casino marker obligation.

Bankruptcy will not protect a debtor from criminal charges and the consequences of criminal actions. There may be other issues that require the hiring of an experienced criminal defense attorney.

Gambling Can Destroy You Financially

You don’t need much time to dig up a giant financial hole if you have an impulsive gambling addiction. You can lose hundreds and sometimes even thousands of dollars very quickly when you gamble. Many people experience overdue bills, borrowing money from friends, coworkers, or family, maxed-out credit cards, denial of credit, frequent payday loans or cash advances, etc.

People take years to pay off their debts when they accumulate. Saving money is the key to avoiding all of this, but unfortunately, gambling has a firm grip on most people that they cannot break free from.

Gambling Shifts Your Priorities

Setting your priorities straight is the key to avoiding bankruptcy. You don’t want to fall behind on your payments and should spend your money on what is important to you. Gambling can be a major obstacle in all of this. It changes your priorities. Rather than focusing on other ways to recover from gambling losses, people use gambling as an excuse to pay off gambling debts with winnings. This exacerbates the bad debt problem.

Gambling Debts Can Pile Up Really Quickly

The debt a gambler incurs in gambling can pile up very quickly, and as a result, he quickly exhausts any extra funds and starts using household funds for gambling. As a result, they borrow money to pay regular expenses. However, even borrowed money is often used to fund the gambling habit.

The indebtedness with bills multiplies rapidly as a result of this behavior. A family home may be repossessed. Cars may be repossessed. Children and spouses can suffer hardships caused by the issue. The only way to get out of debt and start anew is to declare bankruptcy.

The “Big Win” Addiction

Bankruptcy can also be caused by addiction. Many gamblers believe money is the cause and solution to all their problems. Despite their losses, they continue to gamble, believing that all their problems will be solved with just one more “big win.” No matter how big the “win” may be, addiction will not be solved. Gambling addiction isn’t a financial illness; it is an emotional one.

An experienced consumer bankruptcy lawyer understands the ins and outs of relating gambling debts to fraud. Always consult an experienced consumer bankruptcy lawyer before filing for bankruptcy for gambling debts or any other debt.

Do I Need a Lawyer?

It is important to hire a bankruptcy lawyer when filing for bankruptcy. Many of your assets can be shielded from creditors. An experienced bankruptcy attorney can help you protect your assets and make the entire bankruptcy process as straightforward as possible.