Have you taken cash advances or markers in order to obtain funds for gambling? The odds are not in your favor that you actually were able to win with the money borrowed and repay the lines of credit. In the past, bankruptcy courts regularly found gambling debts to be non-dischargeable. In recent times, however, the courts are allowing a discharge of this type of debt. Nonetheless, the legal test administered by the courts and the elements that a creditor must prove, leave an air of uncertainty about the dischargeability of a gambling debt.
Legalized gambling debt may be incurred when credit is extended by casinos directly to patrons. More commonly, gambling debt may be realized as cash advances from credit cards. Debtors seek to discharge this gambling debt under 11 U.S.C. 727. Creditors, in turn, seek its non-dischargeability, typically under § 523(a)(2)(A), which excepts from discharge a debt “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition ….”.
In order to establish that a debt is non-dischargeable under § 523(a)(2)(A), as a debt for money, property, services, or credit obtained by false pretenses, a plaintiff must prove by a preponderance of the evidence that: “(1) the [defendant] made an omission or implied misrepresentation; (2) promoted knowingly and willingly by the defendant[ ]; (3) creating a contrived and misleading understanding of the transaction on the part of the plaintiff [ ]; (4) which wrongfully induced the plaintiff[ ] to advance money, property, or credit to the defendant.” In re Khafaga, 419 B.R. 539, 546 (Bankr. E.D.N.Y. 2009) (quoting In re Hambley, 329 B.R. 382, 396 (Bankr. E.D.N.Y. 2005)).
For a plaintiff to prevail under the false representation provision of section 523(a)(2)(A), it must demonstrate that: (1) the debtor made the representations knowing they were false; (2) the debtor made the representations with the intent and purpose of deceiving the plaintiff; (3) the creditor justifiably relied on the debtor’s false representations; and (4) the creditor suffered a loss or damage as a proximate consequence of the representation having been made. See, e.g., Field v. Mans, 516 U.S. 59, 61, 116 S. Ct. 437, 133 (1995).
Fraud in this context means common law fraud: creditors must rely to their detriment on a material misrepresentation that was intentionally made. See, Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 (1995). Creditors must prove each element of the fraud by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 659, 112 (1991).
Depending on the facts of the case, gambling debt may also be found non-dischargeable under other subsections of Â§ 523(a)(2). At least one court has found gambling debt incurred on the eve of bankruptcy non-dischargeable as “luxury goods or services” under Â§ 523(a)(2)(C). Trump Plaza Assoc. v. Poskanzer, 143 B.R. 991 (Bankr. D. N.J. 1992). In addition, if there is a written statement, such as credit markers signed by a patron of a casino, the debt may be non-dischargeable under Â§ 523(a)(2)(B). Id. at 1000.
In Tropicana Casino & Resort v. August (In re August), 448 B.R. 331, 2011 (Bankr. E.D. Pa. 2011), the judge made a detailed assessment of the debtors history with the casino including: the debtors extensive gambling and credit history with the casino, the repayment by the debtor over the years of a substantial amount of funds, the debtors substantial, if not, consistent gambling winnings, as well as the debtor’s credible testimony to find that the debtor believed she would be able to repay the casino the $66,000 she borrowed, and intended to do so, presumably from her gambling winnings. Furthermore, although such a belief may have defied the odds, particularly when gambling on a slot machine; such a belief did not support the casino’s conclusion that the debtor never intended to repay the marker and obtained her loans under false pretenses. See In re Hall, 228 B.R. 483, 490 (Bankr. M.D. Ga. 1998) (“So long as the debtor has an honest, even if unreasonable, belief that he will get lucky at gambling and pay off his debts then this Court is satisfied that the debtor has the requisite intent to repay.”); In re Scocozzo, 220 B.R. 850 (Bankr. M.D. Pa. 1998); In re Murphy, 190 B.R. 327, 334 (Bankr. N.D. Ill. 1995) (“In this case, considering all the circumstances, the Court finds that at the time the Debtor incurred the debts at issue he intended to repay them and believed (however unreasonably) that he would have the means to do so from his gambling and investments. The Debtor had for years successfully relied on such ‘income’ to pay off his credit card debt.”); see, also, In re Pusateri, 432 B.R. 181, 201 (Bankr. W.D.N.C. 2010) (“twelve year exemplary borrowing history” with the credit union was evidence of the debtor’s intent to repay the debt).
In sum, the dischargeablity of a gambling debt will rely upon whether the party objecting to the discharge can prove the factors enumerated as set forth in the case law above. Furthermore, as also discussed within those factors there is an element of fraud which must be proven by the party objecting to the discharge whereby a Judge can find, as he did in the Tropicana case discussed above, that a debtors actions can speak louder than words to disprove the fraud alleged by the objecting party.
The New Jersey personal bankruptcy attorneys at Riviere Cresci & Singer LLC can answer any questions you may have concerning gambling debt, or any general bankruptcy questions. If you live in New Jersey, including the towns of Neptune, East Windsor, Jackson, Lakewood, Long Branch, and Old Bridge, call us for a free consultation to find out how we can help you.