Bankruptcy and Gambling Losses
Bankruptcy gives people the opportunity to get a fresh start through the discharge of some or all of their debts, but getting rid of gambling debts can be tricky. Under 2005 changes to U.S. bankruptcy law, luxury services are difficult to discharge, as are debts incurred when a person doesn't have the intent to pay it back. Courts have ruled that gambling debts, even among people who have gambling addictions, may not be dischargeable because they are akin to expenses incurred under a luxury lifestyle. That being said, a person with gambling-related debts may see them discharged if they can demonstrate that they intended to pay when they incurred the debts.
Other People Are Reading
-
Chapter 7 vs. Chapter 13
-
Individuals file bankruptcy under two chapters of the bankruptcy code. Under Chapter 13, the filing of bankruptcy puts an immediate halt to creditors' attempts to collect until the debtor can devise a payment plan. Under the payment plan, the debtor pays some or all of his debts over a three- or five-year period. Under Chapter 7, most debts are wiped off the books after the debtor turns over all of his assets.
Chapter 7 Difficulties
-
In Chapter 13, debtors will end up paying something back, and creditors will get at least some of their money. In almost 90 percent of Chapter 7 cases, there are no assets to sell to pay debts, meaning creditors get nothing. In 2005, Congress changed bankruptcy laws to make it more difficult to file for Chapter 7 under the belief that many filers were living beyond their means and abusing bankruptcy laws when it came time to pay. When a debtor files for Chapter 7, creditors comb through their financial disclosures looking for evidence of out-of-control spending that a debtor did not intend to repay. They then challenge the bankruptcy, seeking either the dismissal of the case or a conversion to Chapter 13.
-
Example
-
In the case of a Texas couple seeking relief under Chapter 7, the pair operated a business which showed a loss of $2,600 in 2005 and a profit of $850 in 2006. The trustee in their case reviewed their credit card statement and found that the pair had bought thousands of dollars of luxury clothing. In 2006 alone, the couple had $171,000 in gambling winnings, but they lost $191,000, mostly financed by credit cards. The couple said they intended to pay their credit card debts through gambling winnings. Lawyers in the case sought its dismissal because the couple only stopped gambling and sought treatment for gambling addiction after they had maxed out their credit cards.
Opinion
-
When determining whether to dismiss a bankruptcy, judges must consider whether debtors filed the petition in bad faith and whether the totality of circumstances demonstrates abuse. Courts have ruled that using credit cards to finance gambling losses is no different from buying luxury goods. Courts look to whether defendants intend to pay such debts. They make a distinction between hoping to win and intending to pay. When a gambler loses so much that he can never dig himself out, his actions challenge his statements that he intends to pay, according to court documents. In the previously mentioned case, a judge dismissed the couple's Chapter 7 petition.
-
