We live in a culture of gambling. We gamble in a variety of circumstances and it is just part of our human makeup because there is a certain excitement, sense of happiness, and thrill in taking a risk and the possibility of winning something. Gambling is an interesting term and it can be used broadly, such as when we make a “gamble” by choosing a certain career. However, what most people think about when they hear the word gambling is that of risking money on some sort of game or sporting activity. They think of Las Vegas! Yet, gambling can certainly be different things to different people and it can include things like day trading in the stock market or engaging in high-risk real estate investments.
Gambling, like every other pleasure in life, can sometimes get out of control causing great financial distress on the gambler and his loved ones.
When gambling losses being to wreak havoc on finances, a common question that a bankruptcy attorney is asked is whether gambling debts can be wiped out in bankruptcy. With some qualifications, the answer is yes. Gambling debts are fundamentally no different than any other unsecured debt.
Many people who gamble choose to incur debt from time to time. While incurring gambling debt is probably not the best idea, if you can pay your bills and meet your financial obligations, then gambling is simply an expression of your free will. The problem comes in when a person takes on too much debt with an inability to pay off these obligations.
Bankruptcy has famously been described in a U.S. Supreme Court decision as the legal process that gives:
“the honest but unfortunate debtor … a new opportunity in life and a clear field for the future, unhampered by the pressure and discouragement of preexisting debt.” Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).
This description of what bankruptcy is intended for is a helpful guild to determine what limits or qualifications could potentially arise in the discharging of gambling debts in a bankruptcy. In the vast majority of cases, there are no objections.
Problems do arise, however, when a creditor that funded the gambling (or one that inherited the funding from the original creditor), feels taken advantage of and that their extension of credit to the debtor was abused, grossly negligent, or done with the knowledge that it couldn’t be paid back per the credit agreement.
Chapter 7 Bankruptcy Options
Gambling debts are no stranger to Chapter 7 bankruptcies. While only a certain small percentage of the population has serious gambling problems, consumer bankruptcy attorneys are very accustomed to seeing a regular flow of people needing to file bankruptcy due to gambling debts. It is not at all uncommon.
As mentioned above, unless a creditor objects to the bankruptcy, then gambling debts are wiped out in a Chapter 7 bankruptcy discharge automatically.
The key with every bankruptcy is to be completely honest and not hold back any details of the questions asked, both in word and in spirit. Bankruptcy losses within one-year of filing bankruptcy must be reported on the official forms but that is just a formality and doesn’t disqualify a person seeking financial relief primarily resulting from gambling.
As an added bonus, a Chapter 7 bankruptcy may, in some circumstances, help stop the gambling habit because the credit card accounts are normally closed immediately after filing, thus cutting off the source of funding.
Chapter 13 Bankruptcy Options
A Chapter 13 bankruptcy is equally as effective at wiping out gambling debts compared to a Chapter 7. There really isn’t any difference between the two chapters on this issue.
What is important, however, is ensuring that the gambling stops if you are in a Chapter 13 bankruptcy. Clearly, gambling isn’t a “reasonable and necessary” monthly expense, which is the standard by which a Chapter 13 budget is established. The real risk in Chapter 13 cases where gambling is a chronic condition is that the debtor will not have enough money to make their Chapter 13 plan payment, plus regular monthly ongoing and necessary expenses if gambling continues.
Our bankruptcy attorneys have spent years practicing Chapter 13 law and we have definitely seen this problem occur more than a few times.
Gambling and Bankruptcy FAQs
Gambling debts are dischargeable in bankruptcy just like any other unsecured debt. There is clearly a heightened sense of how much debt was incurred and how recently it was created, but fundamentally, there is no distinction between regular credit card debt and gambling debts.
Bankruptcy may be an appropriate way to get out of gambling debt and many people have successfully done this.
Gambling debts are commonly discharged in a Chapter 7 bankruptcy.
Yes, Chapter 13 is available even if you have gambling debts. Gambling debts are treated the same as any other unsecured debt in a Chapter 13 bankruptcy.
A person in Chapter 13 bankruptcy proposes a monthly budget to the Trustee, Creditors, and Court. A common monthly expense is for “Entertainment.” This should not be a large amount of money for obvious reasons.
If “gambling” is your form of entertainment and done at a very minimal amount and within the budget, then technically gambling is not prohibited while in Chapter 13. With that said, be very careful if you gamble while in any bankruptcy.
If you have a problem with gambling, then don’t even consider it.
You must report any money (or right to receive money in the future) that unexpectedly comes your way while in a Chapter 13 bankruptcy. Failure to report this newfound money can result in a dismissal of your case and, in certain circumstances, cause bankruptcy fraud charges to be brought against you, even years later.
The best thing to do is to contact your bankruptcy attorney and explain your situation.
Bankruptcy attorneys are very used to these types of things happening and will know exactly how to advise you in your particular and unique case. The advice you get may be better than you are expecting, such as potentially being able to get out of bankruptcy early, under certain circumstances.