Can You File Bankruptcy for Gambling Debts?

Gambling bankruptcy—it’s not Donald Trump’s latest maneuvers involving his Atlantic City holdings, but rather when someone files bankruptcy to escape gambling debts. Is this actually something that a gambler can do, if he’s in over his or her head?

Yes, it is—you can discharge gambling debts in bankruptcy.

First, Check that the Gambling Debts are Enforceable

Not all gambling debts are enforceable. To begin with, illegal or criminal debts are generally not enforceable, so debts from illegal gambling would not be enforceable. (This includes much Internet gambling.) Or rather, they are not enforceable in a court of law; whether they are enforced by thick-necked individuals with blunt objects is another story.

Second, not that long ago, all gambling debts were unenforceable in most places. While the law has steadily been getting friendlier towards gambling debts, it’s a good idea to double check the law in your state to confirm that your particular debts are enforceable before you worry about bankruptcy. They’re very likely enforceable today; however, since gaming law is a surprisingly dynamic, frequently changing area of the law, it’s good to double check before paying.

Third, there are some services that have tried to get around prohibitions on offering different kinds of gambling by making debts voluntary under an “honor system.” (For example, Betcha.com.) If you were gaming on an “honor system” site, you could avoid paying simply by being dishonorable.

Legal Gambling Debts are Dischargeable in Bankruptcy

To the extent that gambling debts are legal and enforceable, they can be discharged in bankruptcy. That’s because bankruptcy discharges ALL debts other than those specifically made non-dischargeable—and gambling debts are not among those exemptions. In fact, as a general matter, gambling debts are the sort of general, unsecured debt that bankruptcy is best at discharging.

However, note that to the extent that you offered any property or asset as collateral or security for the debt, the creditor may be able to take the collateral even though the debt is dischargeable. That’s because bankruptcy does not prevent a creditor from exercising its rights under a security or collateral agreement.  So if you’ve given any collateral or security, you could still lose it. Remember: it’s unsecured debt that bankruptcy is best at eliminating.

How an Attorney Can Help

A lawyer can evaluate whether your gambling debt is one that would be enforceable. If it is, the, lawyer can help you decide whether bankruptcy is the best option for you; which type of bankruptcy to file; and then help you file it.