If you have gambling debt, tell your attorney and don’t lie!

There is a common myth that gambling debts cannot be discharged in bankruptcy. The truth is that gambling debts usually receive the same treatment as any other unsecured debt, like credit cards or medical bills. However, under some unusual circumstances, a bankruptcy court may find that a gambling debt cannot be discharged.

Gambling debts commonly appear as credit card charges or cash advances. An important factor in the discharge of this debt is whether there was an intent to repay the debt when the charge or advance was incurred. If the debtor had no intent to repay the obligation, the credit card company may object to the discharge of this debt on the basis of fraud. Courts have generally been reluctant to listen to this objection by a creditor unless there is strong evidence of fraud. For instance, a debtor who takes out a $10,000 cash advance at the casino, even though he is recently unemployed and overwhelmed by debt, and who files bankruptcy the next day will likely have the hall-marks of fraud.

Most gambling debts in bankruptcy are not as cut and dry as the above example. If the credit card company objects, the bankruptcy court will hold a hearing. The court may look to the debtor’s past credit card transactions, any attempt to repay the obligation, and the records and testimony of the debtor to determine the existence of a fraudulent intent.

All gambling losses must be disclosed by the debtor on the Statement of Financial Affairs. This disclosure is a mandatory requirement and the intentional failure to disclose this information may result in a finding that the gambling debt cannot be discharged, or worse, the court may deny any discharge in the case as a result of the debtor’s misrepresentation. It is particularly important to disclose recent gambling losses to your attorney prior to the filing of your bankruptcy case. Recent credit card charges or cash advances can be problematic to any bankruptcy case; and especially troublesome if related to gambling debt.

Bankruptcy courts can be very forgiving to the honest, although perhaps foolhardy debtor, and very unsympathetic to the dishonest. Honesty and full disclosure is especially important in a case involving gambling debts. Discuss these debts with your bankruptcy attorney and provide all the requested documentation. The success of your bankruptcy case depends on it!