Bankruptcy Gambling Canada
This is the second major announcement for Canada's gaming industry this month. Ontario's pandemic-recovery budget bill (released November 5, 2020) included a suite of revisions to the legislation regulating online gaming/gambling in the province. Gambling debt cannot be discharged if the lenders can prove “willful and malicious injury.” As long as you didn’t try to defraud the casinos or intentionally cause gambling losses, your gambling debts should be able to be discharged in bankruptcy. A retired woman filed for bankruptcy with debts totalling more than $790,000 in taxes owed to the Canada Revenue Agency (CRA). The tax debt arose seven years earlier after an audit of her tax returns concluded that $502,500 that the woman had transferred from a registered retirement savings plan (RRSP) to a self-directed RRSP had disappeared. Filing for bankruptcy in Alberta is something many Canadians think they have to undergo. Although the recent economic downturn exacerbated the problem of debtors being unable to pay their debts, the truth of the matter is that there are always people in Canada who find themselves in over their heads when it comes to what they owe their creditors.
When a Debtor files for personal bankruptcy, there are many schedules and statements that they are required to complete. One such statement is something called the statement of financial affairs. On this form, there are two questions that relate to gambling activity, one relative to winnings and one relative to losses. More specifically, question #8 asks the Debtor to list all losses from fire, theft, other casualty or gambling for the period of one year immediately preceding the filing of the Debtor’s bankruptcy case.
Question #2 on the statement of financial affairs requires a debtor to state the amount of income received by the debtor other than from their job during the two years immediately preceding the commencement of the bankruptcy case. On its face, this question requires the disclosure of all income of the debtor other than from an occupation. Not surprisingly, bankruptcy courts have routinely construed the expansive language of Question #2 as requiring the disclosure of income from gambling and have punished debtors who failed to disclose such income.
Regardless of whether a debtor has generated a significant portion of their income from gambling activity, or their losses in many cases due to serious addictions can result in a line of questioning during a debtor’s Section 341, Meeting of Creditors by the Bankruptcy Trustee. This is the Trustee’s opportunity to dig a little into the real reason for the bankruptcy filing, or whether there are assets that can be administered for the estate to pay off creditors.
With respect to winnings in a casino, dog or horse track, or other gaming venues, those winnings play a large part in how the bankruptcy case moves forward. When a debtor either fails or refuses to properly disclose information to the Bankruptcy Court, it can lead to their case being challenged under the good-faith requirement and may even lead to a denial of a discharge order and in the most egregious matters even criminal prosecution for hiding assets from creditors and the bankruptcy Trustee. For example, if a Debtor were to win $50,000 at a casino, but fail to disclose the cash, most of which can not be exempted then concealing his or her gambling income, would hinder the bankruptcy trustee and buy the debtor time to spend the winnings. This could lead to the filing a complaint for non-dischargeability or even criminal charges. If a creditor or Trustee demonstrates by a preponderance of the evidence that the debtor actually intended to hinder, delay, or defraud a creditor, the court can deny the discharge. The intent to defraud must be actual and cannot be constructive; however, because it is unlikely that the debtor will admit actual fraud, the intent may be established by circumstantial evidence, such as failing to list income generated from a casino. However, the problem that arises for Trustee’s in many situations with frequent gamblers is proving a substantial amount of money won at a casino or several casinos. Large gains are not a problem when derived from single “hits”: A casino has an obligation to provide a form1099 for that longed-for but seldom realized experience or a large win. It is the pattern of the ebb and flow of a gambling addiction, and the documents required to record hat tide, that are at issue. Moreover, if a debtor is playing table games, and they win $1,000 here, $500 there, but over the course of a few months or even a year, generate a large portion of their income from gambling activity, they must tell the Trustee of this.
Where this becomes especially interesting is in a Chapter 13 reorganization. The reason for this is that a Debtor has a duty to propose a plan payment based upon 100% of their disposable income. The 2005 Amendments to the Bankruptcy Code changed the definition of “disposable income”. Congress changed the definition of “disposable income” by tying it to a new term, “current monthly income,” and adding the definition of “current monthly income” that in relevant part, as noted above, looks at the debtor’s six-month pre-petition income. The result is that a Chapter 13 plan payment will no longer be determined on disposable income as of the date of filing the Chapter 13 case but on all income as of the date of filing and any “projected disposable income”. What does all this mean? The Trustee and the courts in dealing with a Chapter 13 case have awoken up to the fact that they can and will require a Chapter 13 Debtor to provide for and hand over any and all project income that they anticipate receiving in the life of the plan. If a debtor generates a significant income from the use of post petition income based on winnings, then the bankruptcy estate may be allowed to benefit from this windfall and unsecured creditors can receive a higher dividend. Carrying this approach forward, a Chapter 13 plan design must include tax returns, bonuses, raises, personal injury settlements, inheritances and etc. A debtor as well as their counsel must consider all of these factors in deciding to file a Chapter 13 case.
Certainly, Congress did not intend for debtors who experience a substantially improved financial condition after confirmation to avoid paying more to their creditors. Rather, unanticipated windfalls should inure to the benefit of the creditors, not the debtor. It is not the design of the Bankruptcy laws to allow the debtor to lead the life of Riley while his creditors suffer on his behalf. The Debtors’ use of post-confirmation income to gamble for personal entertainment while claiming that they cannot dedicate an additional funds per month in repayment of their creditors does not comport with the Court’s understanding of the philosophy of Chapter 13 reorganization.
Bankruptcy Gambling Canada News
The purpose of bankruptcy is to provide equitable distribution of the debtor’s assets to the creditors and “to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.” Williams v. United States Fid. & Guar. Co., 236 U.S. 549, 554-55, (1915) If a debtor does not disclose his or her winnings, a court could find that debtors’ failure to identify the gambling winnings and losses that they incurred in the appropriate periods leading up to their bankruptcy filing was knowing and fraudulent for purposes of § 727(a)(4)(A). Moreover, the fact the gambling winnings are not disclosed can be taken as evidence by a court that the debtor intended to defraud his creditors.