Los Angeles-area casinos can be a lot of fun but can also lead to a lot of trouble. If you’re struggling with gambling debt, bankruptcy may help you get back on your feet.
What Happens To Debts In Bankruptcy ?
Debts are “discharged” through the bankruptcy process. If a debt is discharged, the person who incurred the debt is no longer personally liable to pay it. This means that creditors and collectors can no longer contact them and attempt to collect the discharged debt. A discharge does not necessarily eliminate valid liens or every obligation connected to the debt, so it is important to confirm how a specific debt will be treated. While filing for bankruptcy can help people stuck under a mountain of debt, there are certain downsides to doing so, including that a bankruptcy case can appear on a credit report for up to 10 years. That can make getting new credit tougher for a while.
How (and if) a debt gets discharged depends on the type of bankruptcy that is filed. There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. Under Chapter 7 bankruptcy, debtors surrender non-exempt property, if any, and may receive a discharge of eligible unsecured debts. California’s exemptions protect a lot of property and most debtors don’t have to give anything up. Under Chapter 13 bankruptcy, debtors make payments through a court-approved 3 to 5-year repayment plan based on their income and expenses. At the end of the payment plan, remaining eligible unsecured debt is discharged.
Unsecured debt that can be discharged in bankruptcy includes medical bills, collection agency accounts, utility bills, personal loans from friends, family and acquaintances, etc. It is important to note, though, that not every debt is dischargeable. Common nondischargeable debts include child support payments and alimony, certain taxes, certain fines owed to the government, most student loans unless the debtor proves undue hardship, and certain condominium, cooperative, or homeowners association fees, among others.
Gambling Debt, Bankruptcy, And Discharge?
Gambling debts are some of the more complex debts to get rid of when declaring bankruptcy. Many gambling debts are unsecured debts and may be dischargeable; no Bankruptcy Code provision makes a debt nondischargeable simply because it arose from lawful gambling. If you include gambling debts in your bankruptcy, however, trustees or creditors may ask additional questions to determine whether the debt was obtained by fraud, false pretenses, or without any real intent to repay. They may argue that the player incurred the debt shortly before filing bankruptcy, thus avoiding repayment.
This is where the complications start to arise. If a trustee or creditor objects, the court may have to decide whether the gambling debt was obtained through false pretenses, a false representation, or actual fraud. Practically speaking, you’ll need records and testimony showing that you intended to repay the debt and that you aren’t filing for bankruptcy just to game the system. If you were, in fact, filing bankruptcy in order to game the system and avoid paying your debts, it may be treated as bad faith or fraud. If the objection succeeds, that gambling debt may not be discharged; in more serious cases, the court may deny or revoke a discharge. Obviously this is a difficult issue to prove either way in court and courts use a lot of factors to assess your intentions about your gambling debt.
Proving Good Faith For Gambling Debt
One commonly considered factor is whether you used a marker. A marker is a credit line from the casino that the player can use to fund their gambling. The amount of the marker you’re given is dependent on a number of factors: how you’re using it, what your track record at the casino is, how much is in your bank accounts, and other factors. When you sign a marker, it’s just like any other legally enforceable debt. If you sign a marker and represent that you have the funds to repay it but then declare bankruptcy without making payments, a court may look closely at whether you borrowed in good faith. If the casino proves the marker debt was obtained through fraud or false pretenses, that debt may not be dischargeable. If, on the other hand, you had a reasonable ability and intent to repay the marker but later ran into other issues, such as an expensive illness, your bankruptcy is more likely to be considered filed in good faith.
Another key factor in showing the court that you intended to pay back the incurred debt is to document that you stopped gambling, sought help from a professional counselor, and made at least some of the payments. This can help demonstrate that you were not simply trying to escape the overwhelming debt and that you are taking steps to address the problem in good faith.
A third key factor the court will examine is the timing of the debt. If you incurred the debt long before you declared the bankruptcy, that makes it seem less likely that bankruptcy was your plan when you entered into the agreement with the casino. So, a six-month old debt looks a lot less suspicious to the court than a 6-day old debt.
It’s also important to show that in the time between incurring the debt and filing for bankruptcy, you made at least some payments to the casino in the allotted time frame. The time frame for paying back markers can vary depending on the casino, the marker agreement, and applicable gaming rules. Review the marker documents carefully and speak with a bankruptcy attorney before assuming a particular deadline applies. If you never make a payment on the debt, it may look to the court like you never intended to pay it at all.
The Bottom Line
Though creditors tend to look at gambling debts in bankruptcy suspiciously, courts may recognize that gambling is a legal activity and that gambling-related debts are not automatically different from other unsecured debts. However, discharge depends on the facts, including how the debt was incurred, how close in time it was to the bankruptcy filing, whether any representations were made, and whether the debtor intended to repay. If you can show that you intended to pay the debts and no successful fraud or bad-faith objection is made, you may be able to discharge gambling debts in a California bankruptcy.
Proving that you’ve filed in good faith is going to require the help of an experienced local bankruptcy attorney. If you’re struggling with gambling or other debts and looking for options, contact one of our expert bankruptcy attorneys today for a free consultation. We can help you find the right solution for your unique situation.
Frequently Asked Questions About Gambling Debt and Bankruptcy in California
Can gambling debts be discharged in bankruptcy in California?
Gambling debts may be dischargeable in a California bankruptcy if they are eligible unsecured debts and no creditor successfully objects. However, a creditor or trustee may challenge discharge if they believe the debt was incurred through fraud, false pretenses, or bad faith.
Why are gambling debts sometimes challenged in bankruptcy?
Gambling debts can receive extra scrutiny because a creditor may argue that the debtor did not intend to repay the debt when it was incurred. If the court finds that the debt was obtained through false pretenses, false representation, actual fraud, or that the bankruptcy was filed in bad faith, the debt or discharge may be affected.
What is a casino marker, and does it matter in bankruptcy?
A casino marker is a form of credit extended by a casino that allows a player to gamble now and repay the amount later. If a debtor signed a marker while claiming they had the ability or intent to repay it, the casino may argue that the debt should not be discharged if the facts suggest fraud or bad faith.
What can help show good faith when gambling debt is included in bankruptcy?
Facts that may help show good faith include stopping gambling, seeking professional counseling or support, making some payments when possible, and showing that the debtor intended to repay the debt when it was incurred. Courts may look at the full circumstances rather than any single factor.
Does the timing of gambling debt matter before filing bankruptcy?
Yes. Gambling debt incurred long before a bankruptcy filing may look less suspicious than debt incurred shortly before filing. The closer the gambling debt is to the bankruptcy case, the more likely a creditor may ask whether the debtor intended to repay it.
Can Chapter 7 or Chapter 13 bankruptcy help with gambling debt?
Both Chapter 7 and Chapter 13 may help with eligible gambling-related debts, depending on the debtor’s income, assets, repayment ability, and the facts surrounding the debt. Chapter 7 may discharge eligible unsecured debts, while Chapter 13 uses a court-approved repayment plan before eligible remaining debts may be discharged.
Should I speak with a bankruptcy attorney about gambling debt?
Yes. Because gambling debts can involve questions about intent, repayment, fraud, and good faith, it is important to speak with an experienced bankruptcy attorney before filing. An attorney can review the facts and explain what options may be available for your specific situation.