When a debtor files for bankruptcy, he or she must abide by the rule under the U.S. Bankruptcy Code pertaining to what is known as “full disclosure.”   This means that all debts and assets must be disclosed to the court when a person files for bankruptcy.   With this in mind, a debtor may be hesitant to file for bankruptcy if he or she has to disclose having racked up a large amount of debt due to gambling.  In essence, they may not only be embarrassed to do so, they may also be wondering whether to indicate that they have this debt in the first place, thinking that it cannot be discharged.  Bankruptcy, like other areas of law, is not always black or white – meaning, gambling debts may fall into one of the more “gray” areas of the law.  In other words, whether gambling debts are dischargeable in bankruptcy depends on the particular circumstances of the individual debtor’s case.   As such, consider the following:

Chapter 7 & Unsecured Debt

Gambling debts usually fall into the category known as unsecured debts. An unsecured debt means that the debt is not protected by an asset, unlike a mortgage on a home or a loan on a vehicle, which are both examples of secured debts. Credit card debt is also considered unsecured debt. In most Chapter 7 cases unsecured debts are discharged with ease.

Trustee & Creditor Objections

The problem with discharging gambling debts can arise in two different scenarios. First, the trustee can raise an objection to the discharge. Trustees sometimes take the position that gambling debts are less respectable debts and, therefore, not eligible for discharge. In that scenario, it would be up to the bankruptcy judge to decide whether the debt can be discharged. In the second, probably more likely scenario, the creditor can file an objection to the discharge of a debt with the court. Simply filing an objection does not necessarily mean that the debt will not be discharged.

Likelihood of Creditor Success & Debtor Defenses

In order to succeed on an objection to discharge, a creditor (or trustee) must be able to show that the debtor did not have the means to repay the debt at the time the debt was incurred. Debts incurred in this manner are deemed fraudulently incurred and are not dischargeable. A more common example of fraudulently incurred debt is a person who maxes out all of their credit cards in anticipation of filing for bankruptcy. The closer in proximity the gambling debts are to the date the debtor files for bankruptcy, the stronger the creditor’s case for fraud. This is why the date a debtor files for bankruptcy is very important. In some cases, it is wise for a debtor to delay filing for bankruptcy.  Another defense a debtor may have to a creditor’s objection is if the debtor has an admitted gambling addiction and has taken significant steps towards treatment.

The moral of the story is that if you are considering bankruptcy and have gambling debts, it is critical for you to speak with an experienced bankruptcy attorney. Only a seasoned bankruptcy attorney capable of thoroughly reviewing your particular situation and developing an effective strategy.

If you are wondering if bankruptcy is the right solution to alleviate your gambling and other debts, contact my office today at 913-742-8700 to schedule a free consultation. Trying to tackle your debts can be stressful however, the good news is that you do not have to do it alone. I have been helping people become debt free for over two decades. Together, we can help you regain your financial freedo