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Can Gambling Debts be Discharged in Bankruptcy.

Three bankruptcy Code sections are of concern if the client has incurred substantial gambling debts. The section which excepts from a discharge debts incurred fraudulently, the section barring discharge of debts for willful malicious injury and the general objection to discharge provision regarding transfers of assets with actual intent to hinder delay or defraud creditors or failure to explain loss of assets. The last, Section 727 (a) (2), (3) or (6) of the Bankruptcy Code would be a possible issue if there is a substantial depletion of the clients assets within a year before the bankruptcy filing, either as a failure to explain the disappearance of assets or just as a deliberate attempt to divest himself from the assets in contemplation of filing bankruptcy by gambling them away.

gambling-debtMost casinos will have records of the winnings and losses that were incurred by the client and it is unlikely anyone would deliberately lose substantial assets by gambling them away for the sake of harming their creditors. The Objections to discharge under Section 727 of the Bankruptcy Code are of concern but the client may weather this challenge more easily than the ones addressed below. The client should expect to provide documentation that the funds were actually used and lost. The client should also realize the Chapter 7 trustee might give them a difficult time.

The Casinos who have gambling markers will pose a greater challenge as they often have the gambler sign markers that are much like a check and often have representations by the client that funds are available to pay the marker. These false representations unfortunately might be sufficient to put the client in a bad situation. Often these markers are signed with full knowledge by the casino that the gambler in fact has no funds to cover them. This becomes a matter of proof – Showing the casino did not rely on the representations on the markers and has the gambler sign them deliberately so the casino can later bring a fraud action

The fraud action is made worse when the gambler incurs a mountain of debt far in excess of what he could possibly pay back. A person on a teacher’s salary would have little hope of ever paying back $200,000 in gambling debts. The magnitude of the debt would provide some proof that the client never intended to pay the debt back. This however has not been an insurmountable problem. There are cases where the Court has found that the gambler had an unrealistic but honest expectation that he would win and pay the money back.

gamblingThe final area of concern is the willful malicious injury section in Section 523 (a)(6) of the Bankruptcy Code. This section requires that the client have actual intent to harm the casino. The late Honorable Judge Mannes in out district wrote a helpful opinion in Desert Palace, Inc. v. Rich (In re Rich) (Bankr.Md., 2014) where the court determined that there was no subjective intent by the client to harm the casino. He just had unreal expectations that he would win.

If you have substantial gambling debts you have a serious problem. Those debts may or may not be discharged. To handle the complicated process and litigation that will likely have to be done as part of the bankruptcy you will need to consult an experienced Maryland bankruptcy attorney.

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