14 May Gambling Losses Not Fraud In Ohio
Literary allusions may not be controlling legal precedent, but they can make a point while enlivening an otherwise dry argument. When the judge in in re Baum, US Bankr. ND Ohio, Feb. 29, 2008 paraphrased “A fool, but an honest fool you remain, Peregrine Took” (J. R. R. Tolkien, The Two Towers p. 579) as “A fool, but an honest fool, debtor remains,” it cleverly reinforced the court’s finding that online gambling debts did not necessarily dictate dismissing a Chapter 7 case on grounds of bad faith.
Between June and November of 2006, Debtor accumulated approximately $40,000 in credit card debt from gambling losses on online internet sites. In November, realizing she was in trouble, she consulted an attorney, cancelled her internet service, and attempted unsuccessfully to negotiate an affordable repayment plan. In February, 2007 she filed bankruptcy. The U.S. Trustee moved to dismiss the case on grounds of bad faith, maintaining that the debtor intended all along to declare bankruptcy in the event she accumulated substantial losses.
In ruling against the motion to dismiss, the court noted that the actual fact at issue was not the cardholder’s ability to repay, but her intention. They agreed with several other courts that gambling losses are an excess similar to other excesses associated with living beyond one’s means, but also noted that if living beyond one’s means alone were sufficient proof of dishonesty to warrant dismissal for abuse, a “staggering” number of Chapter 7 cases would have to be dismissed as abusive. The debtor’s positive steps to halt the gambling cycle and attempts to repay weighed in her favor.
Although it did not enter into the decision directly, the court also raised the issue of the enforceability of the debts in a state that prohibits most gambling except for charitable purposes. It cited a ruling in in re Jafari, 378 BR 575 (Wisconsin, 2007): “the parties to a contract may expressly agree that the law of a particular jurisdiction will control their relationship [but] they cannot do so at the expense of important public policies of a state whose law would be applicable if the parties’ choice of law provision were disregarded” and suggested that Ohio’s gambling laws qualified as “important public policies.”
Some of the debt might also be unenforceable under a federal law, the Unlawful Internet Gambling Enforcement Act, enacted October 13, 2006, which prohibits acceptance of credit cards and other financial instruments in an internet gambling transaction if any party to the transaction is operating in a state that prohibits the activity.
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