Many people who visit a casino’s go in with simple intentions of only gambling a certain amount of money. For example, they say to themselves, “I will take $500 with me and if I loose it, I will stop gambling? Unfortunately, their addiction to gambling takes over when they start loosing and their pathological gambling takes over. What happens next? They go to the ATM machine and put in a credit card to take a cash advance, as their bank account does not have enough money to gamble based upon the desire to “win back” their losses. The great tragedy is that this type of transaction typically occurs numerous times in a given night or even over several days and many credit cards have $600, $1,000 or even more debited from the credit lines, which more likely then not, will be lost to the dealers and pit bosses running the games.
When a Debtor finally makes the decision to file for bankruptcy, and they review their credit reports, the question needs to be asked, can they discharge the debt on the credit cards for those past cash advances just the same as if they had purchased a product or service using the credit card? The second question to ask is if they can discharge the cash advance, do they need to wait a certain period of time to do so.
When cash advances aggregating to more than $925 obtained by debtor within 70 days of filing for bankruptcy, the debt may be deemed non dischargeable, but the creditor has to prove to the court that there was no intent to pay back the debt or that the debt was incurred as a result of false pretenses at the time the cash was withdrawn from the ATM. In light of recent case law, such a demonstration is more difficult then it use to be due to the fact that the creditor has to show subjective intent and not just an inability to pay. An easier way to look at this is to consider that all cash advances are dischargeable unless a creditor objects to them in an adversary proceeding, which can be very expensive for the Creditor. Years ago, casinos and credit card companies often sought to object to discharging extensions of credit given to debtors at the casino. However, in light of recent case law and the extensive cost of protracted litigation this does not happen nearly as often any longer.
Some bankruptcy courts have adopted an “implied representation” theory, under which the use of a credit card is an implied representation to the issuer of the holder’s intent and/or ability to pay. GM Card v. Cox, 182 B.R. 626, 633 (Bankr. D. Mass. 1995). Other courts have adopted an “assumption of the risk” theory, which provides for the discharge of credit card debt incurred before the issuer communicates to the holder that it is revoking the card . Still other courts have adopted a “totality of the circumstances” test, sometimes in conjunction with an implied representation theory. &
It should be noted, that many bankruptcy attorneys will ask the question, when was the last time you took a cash advance? If the answer is with in 70 days, many attorneys will advise their clients to simply wait out the look back period before filing. This does become problematic when the Debtor is facing a foreclosure, wage garnishment or other serious legal consequence that requires the automatic stay to prevent a judicial proceeding from moving forward.