Bankruptcy and Gambling Debt

Gambling has become a major problem in our society. I have come across many individuals who became heavily indebted because of compulsive gambling.

Filing for personal bankruptcy is an option that naturally comes to mind if someone finds herself with a lot of gambling debt. However, there are a few things one should be made aware of:

• Filing personal bankruptcy does NOT automatically get rid of your debts. Filing bankruptcy only protects you from legal proceedings by your creditors (the legal term is “stay of proceedings”).

• To get rid of your debts, you must obtain your discharge from bankruptcy. For a first time bankrupt, a discharge will generally happen automatically (“Automatic Discharge”) after 9 months or 21 months, as the case may be,  if you attend debt counselling, pay your surplus income requirements and keep a budget of your income & expenses.

• However, if most of your debts are comprised of gambling debt, you will NOT be eligible for an automatic discharge. The trustee will be required to obtain a hearing date with the bankruptcy court which will review your file.

• As a condition of issuing an Order of Discharge, the court will require you to repay anywhere between 5% to 50% of the gambling debt. Where you would fall in that range depends on your individual circumstances.

• For example, I had worked with a single mother of an autistic child whose husband left her and she became depressed. Her gross income was $25,000 per year. She started gambling to alleviate her depression and incurred $100,000 in gambling debt on her credit cards. In this case, the court took into consideration that she was a single mother of an autistic child (she was required to obtain doctor’s letter to substantiate this). The court ordered her to pay $5,000 to the trustee as a condition of her discharge from bankruptcy.

• As another example, I worked with a professional accountant who had accumulated $400,000 in gambling debt in Las Vegas. I worked with him to facilitate a settlement with his creditors by way of a proposal to his creditors for $100,000, which gave his creditors a return of 25%. He was able to borrow the funds from friends and successfully complete the settlement. However, it wasn’t long until he contacted me thereafter and told me that he got into gambling debt again for $200,000. He wanted to file for personal bankruptcy this time, and I indicated to him that given his level of education and income earning ability as well as the fact that he just completed a settlement with his creditors under the Bankruptcy Act, the bankruptcy court may take a hardline position and may require him to pay 50% of the gambling debt as a condition of his discharge. I also informed him that it’s possible that the court may even refuse his discharge.

• In less extreme cases, the Toronto bankruptcy court will, on average, require you to repay 10% – 15% of the gambling debt to the trustee, who will distribute this to your creditors.

• In Ontario, you may also be required to complete a counselling program for gambling addiction and register with the OLG Voluntary Exclusion Program.

The reason why the Canadian bankruptcy system imposes these requirements is to discourage the abuse of credit for gambling. Therefore, if you have significant gambling debt and are contemplating filing for personal bankruptcy, please contact us so we can review your individual circumstances.

This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances.

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