Some of our clients have significant gambling debt when they come to us for advice regarding discharging debt in Massachusetts Bankruptcy Court in Boston.
Some research showed that approximately 10% of all personal bankruptcy filings are linked to gambling debt; and that 20% of “compulsive” gamblers ultimately file for bankruptcy protection.
This phenomenon is worldwide. According to a research study in Australia, gambling debt is not dischargeable and often scrutinized as potential fraud. To further complicate matters here in the United States, often gamblers are in debt to Native American or Indian “nations” which are not subject to US jurisdictions.
Evidence shows that a significant percentage of gamblers use their credit cards to obtain cash advances in order to gamble. The problem arises when a Trustee considers the cash advances to be knowingly unplayable. When the Trustee or the credit card issuer determines that the debtor knew s/he was unable to pay back the debt, they can ask the Court to exempt the debt under Sec.523(a)(2)(A).41 This section provides:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition …. 42
Even though Sec.523(a)(2)(A) has been in existence only since 1978, the concept of excepting debts obtained by false pretenses or fraudulent acts from discharge is by no means new. The roots of Sec.523(a)(2)(A) reach back to both the Bankruptcy Act of 1867(43) and the Bankruptcy Act of 1898.44 Both Acts prohibited the discharge of debts that had been obtained through “false pretenses” or “false representations.”45
Section Sec.523(a)(2)(A) was adopted in 1978 when Congress repealed the 1898 Act and codified federal bankruptcy law in its current form as title 11 of the United States Code (also known as the “Bankruptcy Code”).46 In drafting Sec.523(a)(2)(A), Congress added the phrase “actual fraud” in order to establish firmly the type of behavior the exception was meant to encompass. The legislative history states: “Subparagraph (A) is intended to codify current case law e. g., Neal v. Clark, 95 U.S. 704 (1887), which interprets ‘fraud’ to mean actual or positive fraud rather than fraud implied in law.”
To determine if you can discharge your debt, gambling or otherwise, contact an experienced bankruptcy attorney. We offer free consultations in Boston at our downtown office.