Gambling debt forgiveness

15 December 2017

You can have your gambling debts forgiven by going the legal process to receive Chapter 7 bankruptcy protection or Chapter 13 bankruptcy protection. You will need to meet a few requirements to secure that outcome, however. This list of answers to frequently asked questions prepared by the experienced Ohio bankruptcy lawyers at the Calig Law Firm explains several of the conditions for gambling debt forgiveness. Requesting a consultation will provide answers to questions specific to your own circumstances.

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Should I disclose gambling losses and debt in my fillings with the federal bankruptcy court?

Yes. The federal bankruptcy judge who handles your case can only discharge debts that you disclose.

Do I have to list my gambling debts separately?

You will be required to disclose any gambling losses that have taken place in the last year. Your bank records and credit card statements will be analyzed line by line. Loans and advances taken to support gambling at a licensed casino, racetrack, and sports-book will show up in past bank and on credit card statements. These debts will be listed with your other debts such as credit cards and medical bills.

Is a bankruptcy judge required to discharge my legal gambling debts?

No. There are different factors to take into consideration outside of the fact that the debt is simply from gambling. The court can look at the time you used money on your credit card to gamble. If you, for example, lost $10,000.00 gambling and filed for bankruptcy two days later, the court could say that debt is non-dis chargeable. This would be because the court could take the position that the debt was incurred with no intention to pay it back. Contacting a knowledgeable bankruptcy attorney would allow you to make sure that you are taking the appropriate steps to protect yourself.

Is gambling debt considered different from other kinds of debt?

Yes. Even when put on credit cards, bankruptcy gambling debts are subjected to closer scrutiny than other unpaid charges. The judge and the companies that are owed the money you borrowed to gamble with will want to see evidence that you took out the loans or advances with every intention of paying the money back.

How can I prove I intended to pay my gambling debts but simply got into a situation where that became impossible?

You signature on credit card transactions and loan documents serve as the first proof that you did not take a company or financial institution’s money under false pretenses. You can also help yourself by refraining from gambling for several months before filing your bankruptcy petition, and by then continuing to not gamble while going through the bankruptcy process.

Does it matter where I accumulated my bankruptcy gambling debt?

No. You owe money you have borrowed from all sources no matter where you live. An Ohio bankruptcy filing does not cover debts incurred only in Ohio.

How can I get help with filing for Chapter 7 of Chapter 13 bankruptcy protection?

Call (614) 252-2300 to request a confidential consultation with an Ohio bankruptcy lawyers at the Calig Law Firm. We work with clients during all stages of the bankruptcy process, from making lists of secured and unsecured debts through appearing in federal court, negotiating with remaining creditors, and restoring and repairing credit. We also take appointments online through this contact form.

Gambling is essentially anything that starts with the phrase “I bet…”

It’s a wager. You bet something of value – usually money – on an event with an uncertain outcome hoping to take home a bigger return. That shouldn’t be news to most people. About 85% of adults in the U.S. have gambled at least once in their life and the gambling industry takes in about $500 billion a year.

What might be news is that as many as 23 million Americans go into debt because of gambling and the average loss is estimated to be around $55,000.

So how do gamblers pay for their losses?

They “borrow” from credit cards, savings accounts, investment portfolios, retirement funds – anywhere there’s money or credit available – hoping to fund the one big bet that gets them back to even.

But if you’re out of luck and that pile of chips has turned into a pile of debt, the answer is not to go all in. The answer is to convince yourself to stop gambling altogether, and seek psychological help for the addictive nature of the problem.

Steps to Overcome Gambling Addiction

Before you think about paying off your gambling debts, treat the root of the problem: an addiction to betting. It won’t do you any good to make a $1,000 payment on your credit cards, if you bet a $1,000 on this week’s big game and lose. You’re still in a hole, it’s just a little deeper.

Here are some ways to address your gambling addiction first. Once you get your mind right, then you can get your finances straightened out.

  1. Make a choice to quit gambling – A gambling addiction is classified as a substance abuse disorder, so treat it as such and get straightened out. To say that you are going to stop gambling implies that you may start again. Decide yourself that you will quit gambling forever.
  2. Cut off gambling fund – Close any credit accounts that could feed your gambling problem. Get rid of credit cards and especially ATM cards. Have your bank require two signatures for a withdrawal, one from you and one from a trusted friend or relative. Compulsive gamblers can get the urge to place a bet at any time. Create a buffer between you and your money.
  3. Treat your addiction – There is an 800-number national help line as well as many treatment centers and clinics for people with a gambling addiction. Therapy can help with your problem, and entering a safe environment where you can get some things off your chest will offer relief. Gambling addictions were added to the Diagnostic and Statistical Manual of Mental Disorders as a substance abuse disorder. That means your health insurance is required to provide some form of coverage for therapy through the Affordable Care Act mandate.
  4. Get a support system – It’s hard to admit to yourself that you have a problem, and it’s even harder to admit to others, but it could be the key to keeping you motivated. Explain to your friends and relatives that you have a problem. They should be understanding and admire that you are getting help. It is hard to go about it alone and much easier when you have loved ones encouraging you. Look for support groups like Gamblers Anonymous. It will be beneficial to get advice from people you can relate to, the ones that have been there and done that.
  5. Understand the term winnings – Winnings is how much money you won gambling. It’s what everyone wants to know after you place a bet. How much did you win? You probably know deep down that winnings does not count how much you bet, so know it up front. For example, don’t think that you won a modest $30 if you placed $10 bets in five different leagues and only one paid out. That’s a loss. Daily fantasy sports are especially good at tricking you into thinking you are winning money, when in fact, you are losing.

Gambling’s Impact on Family and Friends

A gambling addiction affects more than just the gambler. The money lost at the casino could have gone to bills and to provide for a family. Friends and relatives that feel the effects of someone’s gambling problem can seek help from organizations like GamCare.

Family and friends absorb the fall out that comes when gamblers start searching for ways to cover their habits and their losses.

Some of the signs that someone you know might be addicted to gambling include:

  • Constantly talks about gambling opportunities
  • Unable to cut back or stop gambling
  • Willing to take high risks when gambling
  • Takes time off from work to gamble
  • Tries to hide gambling habits from family and friends
  • Asks for loans to cover gambling losses

Family and friends are usually the first ones to recognize these signs. If you see this happening, bring it to the gambler’s attention and stand by them when they reach out for help at treatment centers or clinics.

How to Pay Off Gambling Debt

Once the addiction has been treated, it’s time to deal with the debts that resulted. There are several avenues to address that issue, but one that seldom is suggested would be to put them in touch with a credit counselor from a nonprofit debt management agency.

The credit counselors can help them get on a budget and assist with things like reducing interest rates on credit cards. This is usually a long process so family and friends of a gamble should be patient while waiting for a successful outcome.

Gambling debt is no different than other types of debt. You often owe multiple people or creditors money plain and simple. You need to develop a plan to pay them back.

  • List who you owe and how much you owe – Write down everyone you owe money too. That includes casinos, bookies, loan sharks, credit cards, overdrawn bank accounts, personal loans and home equity loans. Calculate the dollar amount you owe each of them.
  • Pay off as much as you can – Consider selling some of your valuables like jewelry, electronics or memorabilia. Don’t sell your car if it provides you transportation to work. Pay off what you can right away. The longer you wait, the more dangerous the situation with bookies and loan sharks becomes and the more interest you rack up through credit accounts.
  • Consolidate your debt – Consolidating your debt gives you a clearer picture on what it will take to break even. The basic principle is that you take out one large loan to pay off your smaller debts. Then you only pay one creditor. There are a few ways to do this. Consolidation credit cards and loans are two options. Look for a credit card that offers 0% interest for a year to 18 months. Another option is to enroll in a debt management program, which will take over payment on your credit card debts and help you lower interest rates. You pay the debt management company once a month and they pay your creditors. Talk with a nonprofit credit counselor to see if this might be your best option.
  • Create a budget – You won’t know how much money you can put toward your debt until you know exactly how much money you need to pay every day bills each month. If the numbers don’t add up, you’re going to need more income.
  • Get a second job – The quickest way to get out of debt is to boost your income. That doesn’t mean bet the house on black. You need steady, predictable income. Find a part-time job and apply that money to your gambling debt.
  • Bankruptcy – This should always be a last resort, but in extreme cases it might be the only option. There is no guarantee that your gambling debt will be discharged, but there isn’t a specific law for or against it. However, the trustee may decide that you accumulated the debt with no intention of paying it back. If you can discharge your debts through bankruptcy, know that your credit will tank, and it will stay on your credit report for 7-10 years depending on whether you file for Chapter 7 or Chapter 13 bankruptcy.

Odds Are Against You

There is a tiny minority of people who make a living by gambling, but unless you are an expert in statistical analysis, you are most likely in the vast majority who don’t win.

If you are an expert in statistical analysis, you would know that the odds are stacked high against you. It’s one of the reasons the United States leads the world in gambling losses. According to the Economist magazine, U.S. gamblers lost $117 billion legally in 2016 and another $150 billion was wagered with bookies on illegal sports betting.

And there are plenty of places to place a bet.

The casinos in Nevada and New Jersey are the most obvious spots, but hardly the only places to gamble. Native American casinos operate in 28 states with annual revenue of nearly $30 billion.

And gambling does not have to take place in a casino at all. There are horse tracks, dog tracks, jai-alai frontons, daily fantasy leagues and online gambling sites for those so inclined. In fact, gambling of some kind is permitted in every state in the U.S., except in Utah and Hawaii.

The easiest place to gamble is probably right in your neighborhood where you can buy a state lottery ticket or play in the weekly poker game at a friend’s house. Either place can take a big bite out of the family budget if you spend $200-$300 a week to get your fix.

Gambling Common in U.S.

Betting on sports and gaming in other areas is easy to find in the United States. There are many outlets. They include:

  • Card playing
  • Commercial and American Indian-owned casinos
  • Charitable games like bingo
  • Sports betting
  • State lottery games
  • Pari-mutuel wagering on horse and dog racing and jai alai
  • Electronic and internet gambling
  • Fantasy sports leagues

Most Americans are casual gamblers and can indulge from time to time without suffering any negative emotional or financial consequences. They gamble for relatively small sums and don’t bet more than they can afford to lose.

They just want some action. It’s a form of entertainment to them. Their small losses are simply the price of admission. And there is the thrill of winning. The satisfaction that you beat the odds, and this time it wasn’t luck!

Problem Gamblers and Debt

Many other Americans are not casual gamblers. In fact, according to the National Council on Problem Gambling (NCPG), an estimated 2 million people in America meet the accepted criteria for addictive or pathological gambling.

As many as four million to six million people are classified as problem gamblers, and perhaps another 15 million are thought of as at-risk.

Problem gambling is a mental health disorder, in which the individual can’t control the urge to gamble. Like any addiction, problem gambling can cause major disruptions in personal, professional, and family life. It can also precipitate serious financial difficulties.

A problem gambler cannot stop gambling behavior despite the recognition of ever-increasing, serious negative consequences.

Problem gamblers may exhibit any or all of the following characteristics:

  • A preoccupation with gambling and thoughts of gambling
  • Borrowing from co-workers, friends or family in order to gamble
  • Lying about money lost and/or the amount of time spent gambling
  • A growing need to continue betting larger amounts to overcome gambling losses
  • Shifting money around in various accounts to hide gambling activity
  • Selling possessions to finance a gambling habit
  • Restlessness or irritability when attempting to stop gambling
  • Continued unsuccessful attempts to stop or limit gambling
  • Neglecting to pay bills on time and/or taking out many loans
  • Taking money from a spouse or children
  • Criminal activity for the purpose of funding a gambling habit

The most consistent distinguishing aspect of the problem gambler is that his or her finances are usually in some state of disorder. That means maxed-out credit cards, overdue bills, overdrawn checking accounts, and/or unpaid or neglected loans.

And they are often in debt.

The average debt generated by a man addicted to gambling is between $55,000 and $90,000. Women gamblers average $15,000 of debt.

In extreme cases, problem gambling can result in serious legal problems or financial ruin. More than 20% of compulsive gamblers end up filing for bankruptcy because of gambling losses.

The personal damage is also great: the divorce rate for problem gamblers is twice the rate of non-gamblers, and 1 in 5 addicted gamblers attempt suicide – 20 times the rate of non-gamblers.

Contributing to the debt problems of the compulsive gambler is all-too-easy access to credit: 90% of those suffering from gambling addiction withdraw cash advances from their personal credit card accounts in order to gamble.

Also, long gone are the days when a gambler has to leave the table because of a lack of funds. Casinos extend billions of dollars of loans to their customers each year in the form of credit markers. The casinos charge 3 to 10 percent interest or more for that service. In fact, only about half the money wagered in casinos are funds physically brought onto the premises. The rest is borrowed.

College Students and Online Gambling

College students are among the most vulnerable when it comes to gambling. The combination of free time and easy access to student loan money doesn’t mix well. About 75% of college students have gambled in the last year, and 6% of young adults have a gambling problem— a higher rate than adults— according to the National Center for Responsible Gaming.

There are state lotteries that 18 year-olds can play, and some casinos have an 18+ policy on poker, but the real cause has been the rise of online gambling.

The Unlawful Internet Gambling Act of 2006 tried to restrict online gambling, targeting poker sites such as PokerStars, Absolute Poker and Full Tilt Poker. Online poker has survived in the U.S. and these days online sports books like Bovada and 5Dimes are thriving.

Fantasy sports were declared a game of skill and excluded from the UIGEA, giving way to an explosion of daily fantasy sports leagues, like DraftKings and FanDuel, in recent years. You may remember them from their $200 million ad campaign in 2015. Fantasy sports have long been a popular recreational activity, with 57.4 million people playing in the U.S. and Canada in 2016.  Now it has become a feeding ground for former online poker professionals.

When the U.S. Department of Justice indicted three of the main poker sites in 2011, they fled the U.S. market. Online poker players turned to daily fantasy sports. It’s a lucrative business for professionals with access to spreadsheets and algorithms that give them all the advantage over your average sports fan. DraftKings and Fanduel have faced their own legal problems of late, and are currently banned in 11 states.

A credit card is all it takes to get wrapped up in the world of online gambling. Before you know it, you’ve landed in a pile of credit card debt.

Don’t be afraid to seek help.

You can be insolvent without being bankrupt, but you can’t be bankrupt without being insolvent.

Confused yet? Many people think of the two as the same thing, but they are very different. Insolvency is a problem that bankruptcy is designed to solve.

Insolvency is the inability to pay debts when they are due. Fortunately, there are solutions for resolving insolvency, including borrowing money or increasing income so that you can pay off debt. You also could negotiate a debt payment or settlement plan with creditors.

Bankruptcy is usually a final alternative when other attempts to clear debt fail.

To make things a little more complicated, insolvency comes in two flavors. The first, called “cash-flow insolvency,” occurs when an insolvent debtor can’t make a payment because he doesn’t have the money. The second, called “balance-sheet insolvency,” results when debts exceed assets.

In the first case, the debtor doesn’t have the money to make a payment when it’s due; in the second it might be possible to make a payment with cash on hand, but financial collapse might not be far off. Paying debts will deplete cash and that leads to cash-flow insolvency.

Insolvency only becomes an issue when a creditor seeks to collect and the debtor can’t pay what’s due. Failing to pay debts usually leads to debt collection efforts that force some kind of action. For example, if you own a house and don’t pay the mortgage, you’ll go into default that can soon lead to foreclosure. If you can’t meet minimum monthly payments on your credit cards and you don’t try to work out a solution with the card company, you’ll almost certainly hear from debt collectors.

Think of insolvency as the trigger for financial hardship. If you can’t pay your rent or electric bill because you don’t have the money, you could call faithful Aunt Beth and ask for a loan. If you get one, the insolvency goes away, probably temporarily unless you are able to balance your income and expenses. The longer you are insolvent, the worse things will become.

If you can’t resolve the insolvency, bankruptcy might be the only way to stop your financial hemorrhaging. Showing that you’re insolvent is necessary for establishing a bankruptcy claim. Federal bankruptcy law defines insolvency for corporations and individuals as the “financial condition such that the sum of such entity’s debts is greater than all of such entity’s property, at fair valuation.”

In other words, you owe so much that selling all your assets won’t cover the bill.

Cash Flow Insolvency

When you can’t pay a debt because you don’t have the money, you are cash-flow insolvent. If insolvency were a medical problem, doctors might call it an acute condition. Many people see financial trouble in their future, what might be called a chronic problem, but they aren’t cash-flow insolvent until they can no longer pay their bills. Financial trouble is chronic; not paying you bills is acute, since that’s the moment when a problem becomes a personal crisis.

Cash flow, or equitable, insolvency impacts both businesses and individuals. Usually it occurs when they’ve exhausted other ways of resolving debt. If you have a credit card payment due, you might be able to liquidate an asset like a lawnmower to pay a debt and avoid cash-flow insolvency, at least for the moment. When you run out of assets to sell and places to borrow money, and your income isn’t enough to cover your debts, you’ll probably be forced to negotiate a payment agreement with your creditors, either directly or through a debt management firm.

Deciding what to do about this type of insolvency requires taking a cash-flow test. The debtor needs to evaluate current and future cash flows to determine whether your income is enough to cover debt payments. If you have an inheritance distribution or some other windfall coming in a few months, your insolvency might be temporary, but if you’ve sold your assets and your income is not going to increase, you might not have a easy way out of insolvency. The analysis can help you decide whether to seek a debt settlement or file for bankruptcy protection.

Balance Sheet Insolvency

Businesses commonly use a balance sheet insolvency test to decide whether to take steps to stay afloat or file bankruptcy. To decide, the business will evaluate its inflows, outflows and assets. If inflows are less than outflows and the value of the business’ assets are worth less than what is owed – a condition called negative net assets — it might conclude that restructuring without the help of a bankruptcy filing might be pointless. But if it has assets that could be sold – a truck or store locations, for instance – that could be used to cover debts, it might attempt to sell the asset and shrink the business.

Financial advisors will review business operations, suggest scenarios for reducing or eliminating debt and suggest a course of action. Staying in business might require that the company convince its creditors that it has made the correct assumptions about future cash flows, but many times businesses and their lenders don’t see eye to eye.

A business can be cash flow insolvent, but balance sheet solvent, if it holds non-liquid (non-cash) assets worth more than its liabilities. The reverse is also possible: A business can be balance sheet insolvent (more debt than assets), but cash flow solvent if its revenues allow it to meet its immediate financial obligations. Many companies that hold long-term debt operate continually in this state.

Insolvency vs. Bankruptcy

Insolvency is not the same as bankruptcy. Insolvency is a state of economic distress, whereas bankruptcy is a court order that decides how an insolvent debtor will deal with unpaid obligations. That usually involves selling assets to pay the creditors and erasing debts that can’t be paid. Bankruptcy can severely damage a debtor’s credit rating and ability to borrow for years.

An individual or company can be insolvent without being bankrupt — especially if the insolvency is temporary and correctable — but not the opposite.

Insolvency can lead to bankruptcy if the insolvent party is unable to successfully address its financial condition.

Insolvent companies can reverse course by cutting costs, selling assets, borrowing money, renegotiating debt or allowing themselves to be acquired by a larger corporation that agrees to take over the insolvent company’s debts in return for control of its products or services.

What If I’m Insolvent?

If you are financially overwhelmed and sure you can’t pay your debts, you should contact a non-profit debt counsellor or debt management company that can help you review your balance sheet. Even if you don’t have enough income to pay your debts, a debt manager can try to negotiate a settlement that will partially repay what you owe and avoid a bankruptcy filing.

You can also try to negotiate with creditors on your own. If you owe a large credit-card debt, contact the card issuer and explain your situation. Though the debt holder is under no obligation to offer a workout plan, reduce your debt or trim you interest rate, it’s in their best interests to try. So, you might be able to reach an agreement if you can convince the creditor that it’s either an agreement or default.

Remember, if you reach an agreement that involves debt forgiveness, you might be liable to pay taxes on the amount the creditor writes off. However, the Internal Revenue Service allows insolvent and bankrupt taxpayers to reduce cancelled debt by their insolvency amount.

For example, if a creditor agrees to settle a $20,000 debt with a $5,000 payment from you, you would have cancelled debt income of $15,000. But if you only had $3,000 in assets at the time you reached the agreement, you would insolvent in the amount of $12,000 ($15,000 cancelled debt income minus $3,000 assets). You would then report $3,000 in income on your taxes ($15,000 less the $12,000 insolvency amount).

If you are unclear about this, contact a nonprofit credit counseling agency or a tax professional.

A court can deem a company or individual insolvent by issuing an insolvency order. A debtor can petition for an insolvency order as part of a request for personal bankruptcy protection. In most jurisdictions, an insolvency order temporarily prevents any attempts at debt collection. Conversely, a creditor can, in some instances, request an insolvency order to be issued against a debtor, if there is reason to believe that the debtor can repay all or part of the debt. In that case, the court can issue an insolvency order, requiring the debtor to repay all or part of the debt.

Reasons for Insolvency

Individuals and businesses can become insolvent for a vast number of reasons, but some of the most common include:

  • Job loss or salary reduction
  • Divorce
  • Medical bills
  • Imprudent use of credit
  • Financial mismanagement


NA (2018, July 27) What If I Am Insolvent. Retrieved from:

Herigstand, S. and Williams, O. (2018, February 28) 6 Exceptions to Paying Tax on Forgiven Debt. Retrieved from:

NA, ND. What is Insolvency?  Retrieved from

Gish, W. (ND) Insolvency Vs. Bankruptcy. Retrieved from

Saavedra, A. and Hopkins, C. (2013, October 30) The Statutory Definition of Insolvency. Retrieved from: 


Bill Fay Staff Writer

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at [email protected]

More From This Author

View Sources

  1. Internal Revenue Service. Tax Information for Individuals. Retrieved May 24, 2012 from
  2. What is Insolvency? Retrieved May 24, 2012 from
  3. Gish, W. (n.d.) Insolvency Vs. Bankruptcy. Retrieved May 24, 2012 from

gambling debt forgiveness

Anna Lund, an Assistant Professor at the University of Alberta, Faculty of Law, feels passionately about bankruptcy law.

“Bankruptcy law is incredibly compelling.  It’s legally mandated debt forgiveness.  People who have met with misfortune, or who have just made some bad decisions, are given a second chance, a fresh start.  But not everybody is given the same opportunity to get a fresh start, and that raises some provocative questions about fairness.”

Anna Lund

She’s bringing that passion for bankruptcy law to a research project on gambling and insolvency. The topic emerged organically from her PhD research.

“The federal legislation which governs the Canadian bankruptcy system singles out gambling as a type of misconduct. When debtors admit that their bankruptcies resulted from gambling, they may be denied the benefit of debt forgiveness,” says Ms. Lund.

During my PhD research, I interviewed insolvency trustees across Canada, and reviewed written decisions from bankruptcy court. I found very divergent attitudes towards this aspect of the legislation.  Some people view gambling as blameworthy behavior that should be penalized.  Others view it as an addiction, on par with other mental illnesses, and are uncomfortable with the idea that we would penalize people who suffer from this condition.”

The next stage of her research, currently underway, involves interviewing individuals, who have made use of insolvency proceedings to address gambling related debt.

“I’m interested in learning about their experiences of the insolvency system. Did it help them to address their financial and gambling problems? What else could or should the insolvency system be doing to help these individuals make a genuine fresh start?”

People interested in participating in the study can learn more HERE.  The end goal of the project is to make recommendations for legal reform, but also to provide insolvency trustees with practical guidance on how to apply the legislation, and what they can do to support problem gamblers who have turned to insolvency.

The project has been funded by the Alberta Gambling Research Institute, an interdisciplinary research consortium of the University of Alberta, the University of Calgary and the University of Lethbridge.

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