Must I Disclose Gambling Income and Losses in Bankruptcy?

If you file bankruptcy, gambling income for the current year and the two previous calendar years must be disclosed on your bankruptcy filing.  Gambling losses incurred in the past twelve months must also be disclosed on your bankruptcy.

The Internal Revenue Service (IRS) considers earnings from gambling as income and they are taxable.  Per the IRS, earnings from gambling includes winnings from lotteries, raffles, horse races, and casinos.  It also defines income not only as cash winnings but also the fair market value of prizes such as cars and trips.  Similarly, the bankruptcy code requires you to disclose the earnings on your bankruptcy.

Losses from gambling must also be disclosed on your bankruptcy filing.  These losses are often scrutinized by the bankruptcy Trustee assigned to your bankruptcy case.  If large sums of money have been withdrawn from your bank account and you indicate it was lost gambling, you may be asked to provide the receipts from the casino, track or other venue where you gambled the money.  If it is in a location away from your home, you may even be requested to provide the hotel receipt or voucher.  With today’s technology, it is easy to determine the exact date and time you were at the venue and how much you won or loss while gambling.

If you took cash advances on a credit card, especially in the months leading up to your bankruptcy filing, and used those funds to gamble, the credit card company may question whether those charges on the credit card can be discharged or eliminated in bankruptcy.  In other words, the credit card company may argue the money was not spent on necessities but a frivolous activity.  They may also argue that you knew in advance you would be filing bankruptcy, so you decided to take your chances and gamble with “their money”.  And if you lost, you planned to eliminate the debt through bankruptcy.  As a result, they may object to the discharge of these debts in bankruptcy and you may be required to pay the money back to the credit card company.

As a result, it is important to speak openly and honestly with your bankruptcy attorney about any gambling income and losses you may have incurred in the past year.  Otherwise, you may find yourself owing money you otherwise thought could be eliminated in bankruptcy.