Gambling addiction cancels woman’s debt

Tuesday, Oct. 6, 1998 | 1:22 a.m.

A federal judge in Memphis ruled a woman did not defraud a credit card company when she ran up $8,200 in gambling debt shortly before filing for bankruptcy.

The woman's gambling addiction contributed to her belief she could repay the debt, according to a recent decision by U.S. District Judge Jon McCalla. He affirmed a bankruptcy judge's ruling.

Credit card companies often ask bankruptcy courts to require their customers to repay large gambling debts run up on credit cards. The credit card companies argue that customers who run up gambling debts are acting recklessly and have no real intention of repaying their debts.

While most courts reject such arguments, some have held that people of modest means who run up huge gambling debts on credit cards do not intend to repay those debts. In such cases, the debts are not discharged in the bankruptcy proceeding, meaning the gamblers are required to repay, said University of Mississippi law professor John M. Czarnetzky.

The Memphis case is unique in that it is the first time a court has taken a person's gambling addiction into account in deciding they should not be required to repay a credit card gambling debt, said Czarnetzky.

Shelby County, Tenn. has had a high rate of bankruptcies and some believe the casinos nearby in Mississippi contribute to that. Consultants to the credit card industry have been pointing to increasing levels of bankruptcy near gambling markets.

Norma Jane Crutcher, 41, of Bartlett ran up the debt on her MasterCard over two days in Tunica, Miss., casinos.

Crutcher won a $134,000 jackpot in 1994. But before filing for bankruptcy in 1995, she had to refinance her house to meet gambling debts.

"Crutcher believed in good faith that she could repay the debt because she had hoped and believed she would hit another jackpot like the one in 1994," wrote U.S. Bankruptcy Judge G. Harvey Boswell in a 1997 ruling, which McCalla affirmed.

Though many bankruptcy judges discharge credit card gambling debts, what was new in this case was that the judge cited the woman's gambling addiction in deciding she intended to repay, Czarnetzky said.

"I've not seen reasoning like that," Czarnetzky said. "It's a novel holding."

Las Vegas bankruptcy attorney Greg Koppe says he hasn't seen the gambling addiction argument used often, and wouldn't rely heavily on it. More persuasive, says Koppe, is an argument that credit card companies that allow withdrawls from cash machines on casino floors are asking for abuse.

"I have had cases where I have successfully argued that when they put the ATM in the casino cage and around the casino cage, it's more likely to be used for gambling than for the gift shop," said Koppe.

Other courts, including the Central District of Illinois in 1993, have ruled that "unrealistic or speculative sources of income are insufficient to prove an intention to repay" gambling debt.

David L. Mendelson, who represents AT&T Universal, which issued the MasterCard to Ms. Crutcher, said Friday that another appeal is being considered.

Availability of credit on casino floors is expected to be addressed in November when the National Gambling Impact Study Commission meets in Las Vegas. The commission also is studying the relationship of gambling to bankruptcy.

SMR Research Corp. of Hackettstown, N.J., last year advised its clients to take geography into account when extending credit and pointed to "the super-high bankruptcy rates among the counties located near the Mississippi River casinos in Tunica County."

SMR vice president George R. Yacik noted that, in the 12 months ending in March, Shelby County - which includes Memphis - ranked first in the country in the rate of bankruptcy filings, at 18.5 per 1,000 people. That's more than triple the national average of 5.0 per 1,000 people.

SMR has recommended limiting the availability of automated teller machines at casinos and making it tougher for customers to get cash advances.