Last updated April 15, 2016.
Los Angeles-area casinos can be a lot of fun but can also lead to a lot of trouble. If you’re struggling with gambling debt, bankruptcy may help you get back on your feet. 
What Happens To Debts In Bankruptcy ?
Debts are “discharged” through the bankruptcy process. If a debt is discharged, the person who incurred the debt is no longer required to pay it. This means that creditors and collectors can no longer contact them and attempt to get the money back. The debt effectively ceases to exist. While filing for bankruptcy can help people stuck under a mountain of debt, there are certain downsides to doing so, namely that declaring bankruptcy can appear on a credit report for up to 10 years. That will make getting new credit tougher for a little while.
How (and if) a debt gets discharged depends on the type of bankruptcy that is filed. There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. Under Chapter 7 bankruptcy, debtors surrender non-exempt property and receive an automatic discharge of unsecured debt in exchange. California’s exemptions protect a lot of property and most debtors don’t have to give anything up. Under Chapter 13 bankruptcy, debtors will work out a 3 to 5-year payment plan based on their income and expenses. At the end of the payment plan, the leftover unsecured debt is discharged.
Unsecured debt that can be discharged in bankruptcy includes medical bills, collection agency accounts, utility bills, personal loans from friends, family and acquaintances, etc. It is important to note, though, that not every debt is dischargeable. These include child support payments and alimony, housing coop fees, certain fines owed to the government, and student loans, among others.
Gambling Debt, Bankruptcy, And Discharge?
Gambling debts are some of the more complex debts to get rid of when declaring bankruptcy. Gambling debt meets all of the legal criteria for dischargeable debt and no law prohibits its discharge. If you include gambling debts in your bankruptcy, however most trustees or creditors will ask additional questions to determine if the debtor had any intention of ever repaying the gambling debt. They often try to argue that a player usually incurs the debt and has a plan to file for bankruptcy shortly thereafter, thus avoiding repayment.
This is where the complications start to arise. In order for a gambling debt to be discharged over the objections of the trustee or creditors, you’ll have to prove in court that the debts were not incurred under false pretenses. Essentially, you’ll need to show that you intended to repay the debt and that you aren’t filing for bankruptcy just to game the system. If you were, in fact, filing bankruptcy in order to game the system and avoid paying your debts, it’s called filing “in bad faith.” If the court finds that you filed in bad faith, your discharge will be denied. Obviously this is a difficult issue to prove either way in court and courts use a lot of factors to assess your intentions about your gambling debt.
Proving Good Faith For Gambling Debt
One commonly considered factor is whether you used a marker. A marker is a credit line from the casino that the player can use to fund their gambling. The amount of the marker you’re given is dependent on a number of factors: how you’re using it, what your track record at the casino is, how much is in your bank accounts, and other factors. When you sign a marker, it’s just like any other legally enforceable debt. If you sign a marker and claim that you have the funds to repay it but you then declare bankruptcy, a court may find that you borrowed in bad faith. That means your gambling debt won’t be dischargeable. If, on the other hand, you did have the funds to repay the marker but then ran into other issues, such as an expensive illness, your bankruptcy is likely to be considered filed in good faith.
Another key factor in showing the court that you intended to pay back the incurred debt is to document that you stopped gambling, sought help from a professional counselor, and made at least some of the payments. This will at least demonstrate that you were not simply trying to escape the overwhelming debt and that you are making steps to correct their errors in good faith.
A third key factor the court will examine is the timing of the debt. If you incurred the debt long before you declared the bankruptcy, that makes it seem less likely that bankruptcy was your plan when you entered into the agreement with the casino. So, a six-month old debt looks a lot less suspicious to the court than a 6-day old debt.
It’s also important to show that in the time between incurring the debt and filing for bankruptcy, you made at least some payments to the casino in the allotted time frame. The time frame for paying back markers varies by the amount owed. Usually if the marker is less than $1,000 players are required to pay it back in 7 calendar days. If a marker is $1,001 – $5,000, the time frame increases to 14 calendar days. If the marker is over $5,000 then you’ll have 45 days to repay it. If you never make a payment on the debt, it may look to the court like you never intended to pay it at all.
The Bottom Line
Though creditors tend to look at gambling debts in bankruptcy suspiciously, judges, surprisingly, can be more understanding. In more cases than not, judges have pointed out that gambling is a perfectly legal activity and debts acquired through them should not be looked at any differently than those acquired through credit card purchases. As long as you can show that you did intend to pay off the debts, you’re probably going to be able to discharge your gambling debts in a California bankruptcy.
Proving that you’ve filed in good faith is going to require the help of an experienced local bankruptcy attorney. If you’re struggling with gambling or other debts and looking for options, contact one of our expert bankruptcy attorneys today for a free consultation. We can help you find the right solution for your unique situation.
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