Illinois Bankruptcy Guide for Discharging Gambling Debts


If you like to bet on horses, sports or casino games, you probably know all too well that you win some and you lose some. If, however, you have experienced more losing than winning, you may be faced with overwhelming debts that you are unable to pay. Keep reading this guide to determine whether bankruptcy is the right step to help you get a fresh start and put your gambling debts behind you.

Below we’ve answered the most common questions we receive from people seeking relief from gambling debt.

#1. How does bankruptcy work?

Bankruptcy offers a bright spot for many people encumbered with bills and gambling debts they cannot afford to pay. For individuals, the two most common bankruptcy filings are Chapter 7 and Chapter 13. Filing bankruptcy under either Chapter 7 or Chapter 13 immediately stops debt collectors from taking collection action against you. That means debt collectors will stop calling you, your wages can no longer be garnished, and foreclosures and repossessions will stop while the bankruptcy court determines how your debts will be settled.

If you file Chapter 13, the bankruptcy court will set up a debt repayment plan that usually involves paying all of your disposable income to your creditors for a period up to five years. At the end of the five years, the court will usually discharge any unsecured debt not paid during the repayment period. To qualify for Chapter 13, you must be able to show the court that you can afford the payments established in your repayment plan.

If you file Chapter 7, the court will take control of your nonexempt assets (e.g., second car, stocks, bonds, etc.) and use them to repay your unsecured debts. Your secured creditors (like a mortgage lender) may be allowed to take legal action to use the secured property to satisfy their debts. Any remaining debt after nonexempt assets are liquidated and distributed will be discharged. Because of the income limits associated with Chapter 7, it is typically the best option for individuals who have lost a job or experienced another significant financial setback like the loss of income from a spouse due to divorce.

#2. Are all of my gambling debts dischargeable?

There is no law that excludes gambling-related debt from being discharged in a bankruptcy case. However, gambling debt can be more complicated than other types of debts.

A creditor or even the bankruptcy trustee could object to discharging any gambling debt if they believe you incurred it without the intention of repaying it. Under bankruptcy law, any debt incurred under false pretense or by fraud is non-dischargeable. That means if you deceptively borrowed money to gamble that you knew you could not repay, the court could deny the discharge of that debt. If, however, you can prove that you indeed intended to repay the debt, the court could still grant the discharge in spite of a creditor objection.

Incurring gambling debt 60 to 90 days before you file for bankruptcy could raise a red flag about your intention to repay. If your gambling is causing serious problems with your ability to pay your bills and manage your debt, it may be in your best interest to wait a few months after incurring new gambling debt before filing bankruptcy. Taking steps to stop gambling, getting help for gambling addiction, and making even small payments on your debts could go a long way in showing the court that you are seeking to improve your financial situation.

 #3. Is there a difference between how the court handles secured debt vs. unsecured debt?

How the court handles your gambling debts depends largely upon the type of gambling debt you have incurred. If you borrowed money using cash advances or other unsecured loans, you can discharge those debts by filing Chapter 7 or Chapter 13. If you used your home or vehicle as collateral for a loan, your creditor may be able to reclaim your home or car to repay your debt. If you still owe money on a loan that you used to purchase your home or vehicle, the lender has the right to claim your property first and force your debt to secondary lenders to be treated as unsecured. There may be an advantage in using Chapter 13 in that situation, because you may be able to save your secured property by catching up on back payments while discharging the gambling debt.

#4. Can I discharge my non-gambling debt too?

Yes, if you have debts unrelated to gambling that you cannot afford to pay, you can include them in your bankruptcy filing along with your gambling debts. Depending on the type of bankruptcy filing you choose, you may even be able to keep your home, car, pensions and retirement accounts.

#5. Are there any debts that I cannot discharge?

Yes, there are a variety of debts that by law you cannot discharge by filing bankruptcy. These include:

  • Student loan debt
  • Certain federal and state taxes
  • Past alimony and child support payments
  • Attorney fees resulting from a child custody or child support case
  • Money owed to a child or spouse in a divorce or separation decree
  • Fines and penalties owed to certain government agencies
  • Personal injury debts incurred while driving under the influence
  • Court fines and penalties
  • Criminal restitution

#6. Am I allowed to continue gambling while in Chapter 13 bankruptcy?

It is in your best interest to cease all gambling activity during the repayment period. You are supposed to devote all of your disposable income to debt repayment. The trustee is likely to believe that you have not done so if you are gambling away extra income. You might be forced to turn that income over to the trustee or face dismissal of your Chapter 13.

If the trustee determines that you are incurring new debt to fund gambling, the trustee might view your gambling as an abuse of the purpose and spirit of your filing. If so, the trustee can ask the court to dismiss your case. The trustee could also request that you surrender all winnings from your gambling activity to pay the unsecured creditors you owe. The best way to avoid all of those problems is to stop gambling.