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Section 523(a)(2)(A) provides that a debt is nondischargeable if it was obtained as a result of “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.”
Courts have three approaches in analyzing the dischargeability of credit card debt:
(1) “implied representation” theory. Each time a debtor uses his credit card he is impliedly representing that he has the intention and the ability to pay the charges. Courts read into this a requirement that the debtor’s representation that he has the ability to pay the charges be reasonable. Therefore, courts have denied discharge having found the debtor’s belief that he could pay his debt out of his gambling winnings to be unreasonable. See cases: American Express Travel Related Services Co., Inc., v. Nahas (In re Nahas), 161 B.R. 930 (Bankr. S.D. Ind. 1994)-the debtor’s desire to gamble to repay his debt did not constitute the requisite intent to repay his debt and found Nahas’ debt was not dischargeable. See also AT&T Universal Card Services Corp. v. Picket, 234 B.R. 748 (Bankr. W.D. Miss. 1999)-The court adopting the implied representation approach to deny the dischargeability of his credit card debts acquired through gambling. AT&T Universal Card Services Corp. v. Mercer (In re Mercer), 246 F. 3rd 391 (5th Cir. 2991)(en banc)-The 5th Circuit chose to adopt the implied representation theory. Holding each use of the credit card is an implied representation of the debtor’s intent to pay. The creditor can show reliance on the debtor’s implied promise by showing that it would not have approved the loan but for the debtor’s promise to pay (through credit card use). The implied representation theory has been criticized in numerous cases. Many courts have taken the position that this elevates the status of credit card companies and makes their debts too easily dischargeable. The Court in Chase Manhattan Bank (U.S.A.) N.A. v. Carpenter (In re Carpenter), 53 B.R. 724 (Bankr. N.D. Ga. 1985) points out that people use credit cards because they do not have the present ability to pay.
(2) “assumption of the risk” theory. Under this approach, first expressed in First National Bank v. Roddenberry 701 F.2d 927 (11th Cir. 1983) the credit card issuer assumes the risk of nonpayment. Only after the issuer has notified the cardholder that the card has been revoked and the debtor has incurred charges anyway are the debts potentially nondischargeable. This theory is totally at odds with the “implied representation” theory and accepted by only a few courts.
(3) “totality of the circumstance” approach. The court must look at a wide variety of factors to determine the debtor’s intent to pay or lack thereof. The factors with which the court may use to analyze the debtor’s intent to repay are:

  1. period between when charges made and bankruptcy filed;
  2. was an attorney consulted about filing bankruptcy before the charges were incurred;
  3. the number of charges made;
  4.  the amount of the charges;
  5. the financial condition of the debtor at the time the charges were made;
  6. whether the charges were above the credit limit of the account;
  7. whether the debtor made multiple charges on the same day;
  8. whether or not the debtor was employed;
  9. the debtor’s prospects for employment;
  10. financial sophistication of the debtor;
  11. whether there was a sudden change in debtor’s buying habits: and
  12. whether the purchases were made for luxuries or necessities

As illustrated in the case of Anastas v. American Savings Bank (In re Anastas) 94 F. 3rd 1280 (9th Cir. 1996). The debtor received cash advances from a credit card and used the funds to gamble at several Lake Tahoe casinos over a six month period. At the time of filing, he owed over $6,000 to the plaintiff-bank and $40,000 in total credit card debt. The court looked at whether he had the intent to repay as opposed to the ability to pay and the court citing the twelve factors stated above concluded that the debts should be discharged. The debtor’s financial condition should be only one factor to consider in making a determination as to dischargeability for fraud.
A creditor must prove:

  1. The debtor made the representation
  2. the debtor knew that the representation was false when made
  3. the debtor made the false representation with the purpose and intention of deceiving the creditor and
  4. the creditor justifiably relied on the misrepresentations and
  5. The creditor sustained a loss as a result of those misrepresentations.

Congratulations on making the decision to eliminate gambling from your life. The form you are about to complete is irrevocable and will remain in effect during the entire time period you select. It cannot be altered or rescinded for any reason. Please consider carefully prior to selecting the length of exclusion.

gamblingArizona Department of Gaming: Self-Exclusion Form

Fill out the form and save in order to preserve your work.  Then follow the directions in the form to submitting it to the Arizona Department of Gaming.

Dawn Revere
Self-Exclusion Administrator
Division of Problem Gambling
[email protected]

In re Ferguson, 20bk17679, 20ap00426 (US Bankruptcy Court, ND ILL 10/29/21) Debtor has failed to sufficiently explain the loss of $70,159.22 despite the Defendant claiming the money was lost gambling. “Similarly, the Defendant’s explanation requires the court to believe that he is an incredibly unlucky (or perhaps poor) poker player as the Defendant never discussed or mentioned leaving the poker table with winnings. See Tran, 464 B.R. at 892 (“the [c]ourt does not find credible that [debtor] never emerged from a casino with net [poker] winnings.”). The lack of even a basic accounting of gambling wins and losses (beyond simply what was withdrawn in cash) makes it impossible for the court to determine whether the cash was really lost gambling or was hidden away to avoid creditors. See McBee v. Sliman, 512 F.2d 504, 506 (5th Cir. 1975); Tran, 464 at 892.

What McBee makes clear is the tension underlying the entirety of a gambling loss defense to a section 727(a)(5) action. While [n]othing in the [Bankruptcy Code] or controlling case law condemns gamblers to denial of discharge per se,gamblers in bankruptcy, like all other debtors, must explain their losses. Tran, 464 B.R. at 895. Absent such a requirement, a claim of gambling losses would become a convenient defense, one where the paucity of evidence would be explained away by the nature of the loss. That would open an avenue to abuse for unethical debtors. Thus, the bankruptcy courts must be vigilant in enforcing the need for corroborating evidence.
Here, the Defendant failed to provide such corroboration to the level of satisfaction required. While no specific piece of evidence suggested in this opinion is required, some additional evidence is. Accordingly, the Defendant has failed to satisfactorily explain his loss of assets and is ineligible for a discharge pursuant to section 727(a)(5).
CONCLUSION: For the foregoing reasons, the Plaintiff has made a prima facie showing that funds sufficient to pay the Defendant’s debts in full existed and the Defendant has failed to sufficiently explain the dissipation of such funds. As a result, judgment is entered in favor of the Plaintiff on the sole count
of the Complaint and the Defendant’s discharge will be, by separate order entered concurrently
herewith, denied.

  • In re Ferguson, 2021 Bankr. LEXIS 3026; 2021 WL 5029387 (Bankr. N.D. Ill. October 29, 2021). While Section 727(a)(5) does not apply to all chapters, the suggestions set forth by Judge Barnes are based on sound reasoning that could be applied to a Chapter 13 best interest of the creditors or other applicable tests.  In the opinion, Judge Barnes provided some suggestions as to what evidence might have been helpful in the Debtor’s situation. The Debtor in this particular case provided some ATM receipts which the Court found helpful, but not determinative alone especially since they represented only a small portion (about 30%) of the total amount at issue. The Judge stated that the ATM receipts in conjunction with “a witness to corroborate his gambling, traveling absences from work/community/home, etc.” could have proven useful. Id. at 10. The opinion also cited to some other cases regarding evidence that was proffered to overcome a 727(a)(5) objection.
  • Wilkins v. Hamilton (In re Wilkins), 2005 Bankr. LEXIS 1491  The Bankruptcy Appellate Panel affirmed the Bankruptcy Court’s decision to dismiss a Chapter 13 case where the debtor gambled in violation of the Court’s order instructing the debtor not to gamble during the case and where the debtor gave false testimony regarding ATM withdrawals at the casino.
  • In re Ford, 345 B.R. 713 (Bankr. D. Colo. 2006)  In a Chapter 13 case converted from Chapter 7 to avoid defending a dischargeability action by an unsecured creditor, the plan was confirmed over the objection of the unsecured creditor because the debtor’s gambling did not indicate bad faith. Despite confirming the plan, the Court emphasized “in the strongest terms that it in no way condones this conduct” and that if the gambling is left unchecked it “could have disastrous consequences on Debtor’s efforts to reorganize under Chapter 13.”
  • In re Richmond, 338 Fed. Appx. 197 (3d Cir. 2009)  Both the Appellate Court and the District Court affirmed the Bankruptcy Court’s decision to confirm Chapter 13 plan over the objection of a casino where the debtor was a habitual gambler who filed bankruptcy, in large part, because of the debt owed to the casino. The Bankruptcy Court rejected the casino’s assertions that the debtor’s transfer of marital property approximately two years prior to his bankruptcy filing was a fraudulent conveyance, that the plan was proposed in bad faith, and that the debtor would be unable to make all of his payments under the plan.
  • Cao Huu Tran v. Harrah’s Operating Co. (In re Cao Huu Tran), 279 Fed. Appx. 567 (9th Cir. 2008)  In a Chapter 13 case where the bankruptcy was prompted by a debtor who incurred significant gambling debts in the months prior to filing, both the Appellate Court and the Bankruptcy Appellate Panel affirmed the Bankruptcy Court’s decision to deny confirmation where the Court did not find credible the self-serving declarations of the debtor that he had cured his gambling problem.