The Relationship of Pari-Mutuel Wagering and Casino Gaming to Personal Bankruptcy

I. INTRODUCTION The growth of legalized gaming in the United Sates over the past several decades has been extraordinary. Before passage of the Indian Gaming Regulatory Act (IGRA) of 1988, casino gaming was legal in only two locations--Nevada (1931) and New Jersey (Atlantic City, 1978). With passage of the IGRA, full-scale casino gaming at Native American reservations, meeting specified conditions, was permitted. (1) Currently 23 states have casino gaming at Native American sites (McQueen, 2000). In addition to the expansion of legal gambling at Native American reservations, there has also been a rapid expansion of casino gaming at state-regulated locations in the United States. Currently, there are 33 states with some form of casino gaming in the United States. (2) To underscore the rapid expansion of the casino gaming industry, consider that wagering at casinos grew from $103 billion in 1982, when there were only two legal gaming locations in the United States, Nevada and Atlantic City, to $615 billion in 1998 (Christiansen, 1999). (3) This represents a 497% increase over the period. For more information on the spread of casino gaming in North America since 1960 see Eadington (1999). The rapid growth in casino gaming has given rise to increased concerns about a causal relationship between gaming and crime, bankruptcies, and pathological and problem gambling. In this study, the authors concentrate on one aspect of these concerns--the relationship of riverboat casino gaming to personal (nonbusiness) bankruptcies. An indication of the level of concern about a possible relationship between gaming and bankruptcy at the national level is demonstrated by the requirement of Congress that the U.S. Department of the Treasury produce a report on the subject. (4) This analysis focuses specifically on the decision by an insolvent debtor to file for legal protection of assets under the Bankruptcy Reform Act of 1978 (BRA78) as amended. As was the case following the BRA78, the number of bankruptcy filings has been increasing in recent years. Nationally, the number of personal bankruptcies increased 91% from 1990 through 1997. (5) Seeking protection from creditors, the debtor may choose between liquidation of assets over a certain exemption level (Chapter 7) or restructuring with debt repayment out of future income (Chapter 13). In this study, no distinction is made between chapter choice. Instead, the focus is on the initial decision of whether to file. Of specific interest in this decision process is the degree to which availability of riverboat casino gaming affects the decision to file for bankruptcy. The effect on the decision to file for bankruptcy of the availability of another gaming alternative, pari-mutuel wagering, is also examined. II. PERSONAL BANKRUPTCY Prior to 1978, the Bankruptcy Act of 1898, although amended a number of times, was the basis for bankruptcy actions until passage of the BRA78. BRA78 included the new federal Bankruptcy Code (the Code) and went into effect on 1 October 1979. The Code was significantly amended in 1984, 1986, and 1994 (Nelson, 1999). When liabilities (debt) exceed assets, an individual is said to be insolvent. The individual is unable to make required interest and principal payments. Insolvency does not automatically lead an individual debtor to file for bankruptcy. An insolvent debtor may take a number of alternative actions, such as refinancing debt, or agreeing to a voluntary workout plan directly with creditors. The debtor may also seek legal protection from creditors by filing for bankruptcy. This latter choice is the subject of investigation in this article. Debtors may file for bankruptcy with the federal bank ruptcy court under Chapter 7 or Chapter 13 of the Code. Chapter 7, or straight bankruptcy, requires the debtor to surrender to the court all assets above specified federal or state exemption levels. In return, the creditors have no claim on future income. …