The short answer is yes, it can. You are obligated to disclose the last twelve months of profits and losses from gambling on your bankruptcy petition. If you do receive winnings and it’s listed on your tax return as income, that also needs to be shown on the bankruptcy petition for the last two years. Gambling can affect your ability to file for bankruptcy.
The first issue is whether you have taken out credit lines or personal loans for the purpose of gambling. This is a good faith issue in terms of whether you intended to repay your creditors or if you were purposely going to default. The objective of borrowing money hoping you would make more gambling will not be a valid excuse. Similarly, having a gambling addiction would not be a valid excuse either.
The trustee’s perspective is that if you have $12,000 a year spent on gambling that is $1,000 per month that you should have used to pay your unsecured creditors. The case law also supports this as well. A Chapter 13 might be an option if you have gambled since you are trying to pay creditors back to some extent. Otherwise, depending on the amount you gambled you might have to wait a year of no gambling to file your Chapter 7 bankruptcy case.
If it’s minimal like a few hundred dollars that is less of a concern. However, if you plan to file for bankruptcy, abstain from any type of gambling so you do not compromise your case.
1) Use credit cards, open new credit lines, or take out cash advances. This could be viewed as a bad faith filing if you take out a large credit line then file for bankruptcy within a few months. The reason is because it appears that the money was taken out without the intention to repay the debt. This could result in the debt potentially not getting discharged. Cash advances taken out and not repaid 90 days prior to filing your bankruptcy case would likely have to be repaid.
2) Give any gifts over $500. If this happens, expect to have to repay the trustee the equal amount of the gift. So, you give your mom a $1,000 birthday gift, you or your mom will be repaying the trustee $1,000.
3) Repay any family members or friends. Same scenario, you’ll have to repay the trustee whatever repayment you have made to friends or family members (insiders) in the last 12 months.
4) Make more than a regularly monthly payment on your car, rent or mortgage. This is considered a preferential payment.
5) Take out large cash withdrawals out of your bank account. The trustee could ask for receipts for these withdrawals to see how the money was spent. It’s much better to deposit funds and use a debit/check to track how the money was spent.
6) Gamble. There are a few potential problems associated with gambling. First, if your spending $500 a month gambling, that money could be used to pay your creditors. Second, if you are incurring debt and taking out credit lines for the purpose of gambling that is also problematic.
7) Sell, transfer, borrow against, or dispose of any property. You do not want to convert assets that would be exempt to a non-exempt asset, or you’ll potentially need to pay the trustee.
8) Purchase new assets. If you purchase an asset, it might not be covered by the bankruptcy exemptions. If that happens you would need to pay the trustee or surrender your personal property. It’s critical to get legal advice, prior to selling or purchasing any property (personal property, real property, or vehicles) prior to filing.
9) Spend money on unreasonable expenses such as vacations or luxury items. Your bank statements are produced so it’s evident when and where money is taken out and spent. Any luxury items can also be viewed as a bad faith filing if you are spending frivolously instead of paying your creditors.
10) Get married. You can get married, but if you do, your spouse’s income gets counted towards the means test and could put you into a Chapter 13. If you’re in the middle of a divorce or getting married, definitely discuss the potential ramifications with your lawyer.
A common question clients ask is whether they can sell or trade in their vehicle prior to filing bankruptcy. If using the Florida exemptions your allowed to have $1,000 in equity in your car. If you rent then you would have another $4,000 in exemptions to use on a car or you other personal property. For example, if the loan payoff on your car is $15,000 and the value of your car is $20,000, you would have $5,000 in equity in your vehicle. If you rent, you would owe nothing to the trustee (we could exempt all of the equity in the vehicle).
If you owned a home you would owe $4,000 to the trustee to keep your vehicle. People often ask why they would have to pay the trustee for a car that is paid off. The exemption amounts are a protection against people spending all of their money to accumulate assets then paying nothing back to their creditors when they file for bankruptcy.
The trustee will use Kelly blue book, private party value. We generally recommend obtaining a certified appraisal if you are over the exemption amount since Kelly blue book doesn’t account for a variety of factors such as the actual condition of the vehicle, mechanical issues or whether the vehicle has ever been involved in an accident. Many times once the vehicle is evaluated by an appraiser particularly if it’s an older vehicle with high mileage, the value will often be less than the Kelly blue book value.
If you trade in your car prior to filing bankruptcy you run the risk of having to pay back that amount to the trustee. For example if you received a $6,000 credit for trading in your current vehicle for a new one, the trustee could say you converted a non-exempt asset into an exempt asset so that amount of money would have to be paid to the trustee. All transfers of either personal property including cars or homes have a two year disclosure period. Under most circumstances, unless there is a reason to get rid of the vehicle, such as an immediate emergency mechanical issue, its best to just have your vehicle appraised and not sell it until your case is concluded to avoid such issues.
