Can my Gambling debts be discharged?
Heading to Las Vegas to score big on slots or poker may seem like a good idea, but what do if your luck runs out and you have accumulated gambling debts you cannot pay? Many debtors in this situation have considered filing bankruptcy and wonder if chapter 7 bankruptcy or chapter 13 bankruptcy really will discharge their unsecured gambling debts. Guess what? The answer is: it depends. Generally speaking, gambling debts are dischargeable, meaning the bankruptcy code does not expressly preclude discharge of gambling debts, but it may not be as simple as it sounds.
Did you intend to commit fraud?
The first question the courts will ask is whether or not you had the intention of repaying your debts when you incurred them. If the courts find that you committed fraud under Section 523(a)(2) of the Bankruptcy Code, the debts incurred through fraud cannot be discharged.
The courts decisions have not been consistent on this issue and have in fact shifted somewhat in the last few years as gambling has become more common. For instance, now gambling is legal in many states and in fact has become a big revenue generator for cities, a source of revenue for the government and a source of entertainment.
If you file bankruptcy and you owe gambling debts the creditors, who are owed the funds that you are trying to discharge, can file an “adversary proceedings” to challenge the dischargeability of the debts 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.” Although these suits are infrequently filed by casinos, if they are you may need to talk to a bankruptcy lawyer.
Will my gambling debts be considered luxury goods?
Not all unsecured debts are discharged and one exception is listed as “luxury goods” which are purchased within 60 days of filing for bankruptcy. Under this exception cash advances over $1,225 obtained within 60 days of the filing of the bankruptcy may be considered nondischargeable.
If you have gambling debts which fall this close to your bankruptcy filing date the court could argue that you had no intention of repaying this debt and under Bankruptcy Code section 523(a)(2)(C) this gambling debt is not dischargeable but it was a luxury good purchased too closely to the bankruptcy filing date.
What type of bankruptcy are you going to file?
If you are going to file chapter 7 bankruptcy certain types of unsecured debts can be discharged immediately. If you have to file Chapter 13 bankruptcy you will have to develop a 3 or 5 year bankruptcy repayment plan.
After the plan is developed it must be submitted to the trustee who will submit the plan to the bankruptcy court. Some addicted gamblers have had their plan denied because they were not able to convince the trustee they would be able to make the payments (due to their severe gambling addiction) and the court denied the repayment plan.
Consider also that state laws can vary for payment of gambling debts. If you have questions talk to your bankruptcy lawyer about your concerns and the issues identified above which may make it impossible to discharge your gambling debts.
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