Judge Barnes Tells Gamblers What Records to Keep to Win a Discharge in Bankruptcy

Anyone who gambles incessantly risks bankruptcy and the denial of discharge without adequate documentation of gambling losses.

Bankruptcy Judge Timothy A. Barnes of Chicago wrote an opinion listing records that gamblers should keep to avoid having their discharges denied under Section 727(a)(5). The section calls for the denial of discharge if “the debtor has failed to explain satisfactorily . . . any loss of assets or deficiency of assets to meet the debtor’s liabilities.”

The debtor sold real estate and received about $70,000 in net cash proceeds. He filed a chapter 7 petition 10 months later. Within six weeks of the sale, the debtor withdrew some $15,000 from ATMs located in casinos. Within a month of the sale, the debtor made $37,000 in cash withdrawals from his bank. The debtor testified that he lost the $52,000 playing poker at casinos.

In his bankruptcy papers, the debtor listed $51,600 in unsecured debts. The chapter 7 trustee filed an adversary proceeding to deny discharge under Section 727(a)(5). In his October 29 opinion, Judge Barnes said that the trustee carried his initial burden by making “a prima facie showing that funds sufficient to pay the Defendant’s debts in full existed.” Judge Barnes denied discharge because the debtor “failed to sufficiently explain the dissipation of such funds.”

In his opinion, Judge Barnes focused on the insufficiency of the debtor’s testimony at trial and the inadequacy of documentary evidence of gambling losses. The opinion also lists the types of evidence that a gambler could introduce to justify discharge.

The ATM withdrawals at casinos were “some evidence” but only represented 30% of the sale proceeds. Although a gambler “typically leaves little in the way of documentary evidence,” Judge Barnes said “there is more the [debtor] could have done to convince the court. For instance, the [debtor] could have provided a witness to corroborate his gambling, traveling, absences from work/community/home, etc.”

Judge Barnes said it was “difficult to fathom” why the debtor made frequent trips to casinos but could produce “no corroborating documentation from gas stations, buses, restaurants or similar trip-related expenses.”

Judge Barnes was mystified as to why the debtor had no records of winnings. The debtor, he said, was asking him “to believe that he is an incredibly unlucky (or perhaps poor) poker player as the [debtor] never discussed or mentioned leaving the poker table with winnings.”

Judge Barnes denied discharge because 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.”

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