Internet or Online Casino Credit Card Gambling Debts: Is Bankruptcy an Answer?
A client comes in with a problem. He has a gambling addiction and he has gone on a bender. He didn't go to a real-world casino, though. He found scores of websites that allow online gaming. While United States law now makes it illegal for websites or credit cards to allow gambling to be charged to a credit card, there are many, many work-arounds available on the Internet. He has run up so many credit cards he now finds bankruptcy to be the only alternative.
Bankruptcy may be the best solution for such a person. Assuming that the individual passess the means test and has income and expenses suggesting bankrtupcty is the best alternative, the credit card debt might be dis-chargeable. The credit card issuers would be listed as unsecured creditors.
The issue is whether a credit card company is likely to challenge the discharge-ability of these on-line gambling debts in an adversary proceeding. Did the addicted gambler/debtor obtain the credit (the actual charges on the credit card) by “false pretenses, a false representation, or actual fraud." Credit card companies often assert that using a credit card when one is insolvent and one has no way to pay the money back is itself a false representation.
To assert such a challenge, a credit card company must file what is called an “adversary action" within a certain time after learning of a bankruptcy. These actions are costly for the creditor (as well as for the debtor). There is a chance, because of the time and money involved, that no credit card company will challenge the discharge-ability of the gambling debts.
If a creditor does challenge the discharge-ability of the gambling debt, the decisions interpreting § 523(a)(2) are not easy to summarize. There is no set answer on how courts approach gambling debts placed on credit cards, let alone those done so over the Internet.
There are, however, certain fact patterns that indicate to the court that the debtor is not engaged in fraud. The actions or situations that indicate to a court the debtor has not engaged in fraud are:
- The debtor is in or has sought counseling for gambling addiction;
- The court finds that the debtor had a subjective intent to repay the debts, even if the debtor thought he or she would repay those debts from gambling winnings;
- The debtor did, over time, make payments on credit cards prior to bankruptcy;
- The debtor did not use cards for gambling at least 90 days prior to bankruptcy; and,
- The debtor did not keep using cards for gambling after consulting an attorney.
Again, these standards are not set. No debtor can be assured that gambling charges on credit cards will not be challenged in an adversary proceeding. The outcome of such a proceeding is hard to predict.