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Increase in bankruptcies coincides with boats' arrival
By JOYCE SMITH - The Kansas City Star
Date: 01/08/00 22:15
Cathy, a 34-year-old saleswoman in Kansas City, had
several
platinum cards as proof of her good credit.
Then she started gambling at area riverboats.
She'd bet a few hundred dollars in cash. When she lost
that,
she'd get cash advances on her credit cards at the
casinos'
customer service counters.
"It made me sick, but the more sick it made me, the more
I
would go back," she said. "They weren't going to beat me
--
I was going to beat them. But they won."
She gambled away an estimated $10,000 to $20,000
between 1996 and 1998. In late 1998, faced with credit
card
debts of more than $45,000, she declared personal
bankruptcy.
She's not alone. Bankruptcies citing gambling debts as a
contributing factor have jumped since the riverboats
entered
the Kansas City market in mid-1994.
The Kansas City Star has examined more than 22,000
bankruptcy filings from 1994 through 1998 in U.S.
Bankruptcy
Court in Kansas City, the busiest of four federal
courthouses
in the Western District of Missouri.
The study did not look in as great detail at bankruptcy
filings
in Kansas. But bankruptcy lawyers interviewed for this
story
reported similar increases in gambling-related
bankruptcies
throughout the metropolitan area.
"It certainly is not divided along state lines," said
Eric Rajala,
an Overland Park lawyer who handles bankruptcy cases.
While bankruptcy filings at the Kansas City courthouse
increased each year, echoing the trend nationwide,
bankruptcies citing gambling as a contributing factor
increased at a much faster rate.
The first Kansas City area riverboat casino opened in
mid-1994. In that year, only 13 of the 3,501 bankruptcy
filings in Kansas City -- 0.37 percent -- listed gambling
losses. Those citing gambling as a factor in their
bankruptcies had unsecured debts of $241,232.
By 1998, 194 of the 5,618 persons who filed -- 3.5
percent
-- said gambling was a contributing factor in their
bankruptcies. They listed unsecured debts of more than
$7.5
million, much of it to credit card companies. (Missouri
law
prohibits casinos from directly extending credit, or
"markers,"
to gamblers.)
Bankruptcy lawyers and gambling counselors say actual
figures might be higher because people are reluctant to
admit
they have a gambling problem.
It's not only debt-ridden gamblers who are the losers.
Experts say consumers pay higher costs because of
bankruptcies -- regardless of cause -- in the form of
higher
interest rates and fees on credit cards. Other costs can
range from more expensive credit insurance to footing the
bill
when problem gamblers enter the court system.
"You look at the increase in bankruptcies and you know
gambling has a social cost," said William Thompson, a
gambling economist and chairman of the Department of
Public
Administration at the University of Nevada-Las Vegas.
"These are not people that can control their gambling,"
he
said. "The question is what happens after bankruptcy
court?
Do they go into treatment or do they just go back home
and
the next day someone sends them a new credit card?"
SMR Research Corp. of Hackettstown, N.J., a leading
publisher of in-depth research about consumer financial
issues, has studied the frequency of bankruptcies in
counties
with legalized casino gambling.
SMR examined 1996 bankruptcies and found that the filing
rate in 2,844 counties with no casinos was 3.96 per
thousand. In 298 counties with legalized gambling within
their
borders, the rate was 4.67 per thousand. And 23 counties
with five or more casinos had a bankruptcy rate of 5.33
per
thousand.
"We don't actually have a problem with the (gambling)
industry, but the odds favor the house," said Stu
Feldstein of
SMR Research. "Outside the gambling industry itself, does
anyone really think that increased gambling helps
consumers'
bill-paying ability more than it hurts?"
Area casino executives referred questions on the topic to
the
American Gaming Association in Washington.
Frank J. Fahrenkopf Jr., president and chief executive
officer
of the gaming association, downplayed the role of
gambling in
bankruptcies and emphasized the broader economic effect
of
the industry.
He also said there were far bigger factors behind
bankruptcies, including job loss, illness and divorce.
"I'm not ready to say, `Wow, oh boy, bankruptcies went up
because gambling came to Kansas City,' " Fahrenkopf said.
Writing in the December issue of International Gaming &
Wagering Business, Fahrenkopf also noted that many
casinos
had been built in economically depressed areas to create
jobs and spur local economies, including East St. Louis,
Ill.;
Gary, Ind.; and Tunica, Miss.
Other studies have debated the link between gambling and
the overall increases in personal bankruptcy filings
across the
nation in recent years.
"The recent rise in consumer bankruptcies is the result
of a
number of factors, the relative importance of which is a
matter of sharp and unresolved debate," the U.S. Treasury
Department said in a July 1999 report to Congress.
"Frequent high-risk gambling does appear to be associated
with a greater likelihood of declaring bankruptcy, but
the low
prevalence of this type of gambling suggests that it has
a
relatively minor impact on the overall bankruptcy rate."
The Treasury report, however, concluded that frequent,
high-risk gamblers had about a 6 percent greater
likelihood of
filing bankruptcy. And it called for further study of the
issue.
Financial affairs
Debtors filing for bankruptcy fill out a Statement of
Financial
Affairs, a form listing income, property, gifts,
garnishments
and other financial information.
Line eight on the form asks for losses within the past
year
due to fire, theft, other casualty or gambling. Debtors
describe any losses in those categories or check the box
for
none.
Some of the debtors in The Star's analysis listed
gambling
losses at $100 or less, but owed thousands of dollars. If
they
were truthful about their losses, gambling appears to be
a
trivial factor in those bankruptcies.
But most cases citing gambling as a factor noted
significant
losses.
In 1997, for example, 11 out of 175 Kansas City area
debtors
who cited gambling as a contributing factor in their
bankruptcies did not specifically declare the amount of
their
debts due to gambling.
But of the remaining 164 debtors, the average debt due to
gambling was $9,443. Their average total of unsecured
debt
was $45,022.
Many debtors declined to be interviewed or could not be
reached for comment. But here are some examples from
public court files:
A Blue Springs couple who won $6,000 gambling at the
riverboats also lost $30,000, most of it in credit card
cash
advances that helped push their credit card debt to more
than $37,000 in 1998.
A Raytown woman earned $22,600 a year but lost $40,000
gambling in a 12-month period. She owed nearly $75,000 to
credit card companies and borrowed an additional $15,000
from her mother.
A Gladstone man lost $80,000 gambling over a two-year
period and owed more than $80,000 to credit card
companies.
A Warrensburg, Mo., man tapped into his 401(k) to offset
his gambling losses of $25,000.
Soon after the riverboats opened in the Kansas City area,
Independence bankruptcy lawyer Joyce Kerber was filing so
many gambling-related bankruptcies that her paralegal
suggested she advertise on a billboard by the casinos.
Some
clients seemed in denial.
"I had one client who didn't admit to having any gambling
debt or gambling losses," Kerber said. "But when the
client
did his new budget under Chapter 13 (reorganization), he
listed $1,200 a month he would need for gambling."
Two of the latest national prevalence studies -- one by
the
Harvard Medical School, the other commissioned by
Congress
-- agree that around 1.6 percent of adults are at risk to
develop a "pathological" gambling problem at some time in
their lives.
The American Psychiatric Association recognizes
pathological
gambling as a disease, one of many impulse control
disorders
listed in its diagnostic manual. Recent research,
including
some projects financed by the gambling industry, suggests
addictive behaviors may be linked to a genetic flaw.
A lawyer last week said gambling addiction played a role
in
the botched attempt to hold up an Olathe bank on New
Year's Eve.
Pheng Siriboury, charged with attempting to rob the Bank
of
America, was "addicted to gambling" and had run up debts
--
"maybe as high as $150,000," said her attorney, Michael
Harris. Some of those debts were on credit cards.
According to SMR Research, four groups are at high risk
for
personal bankruptcy: approximately 40 million Americans
who
have no health insurance, recently divorced men and
women,
drivers who do not have auto insurance, and compulsive
gamblers.
Although compulsive gamblers represent the smallest of
the
four groups, according to the SMR study, they are the
fastest-growing group.
Easy money
If gambling was an addiction of the '90s, then credit
card
issuers indirectly fed the habit by promoting easy
credit,
some researchers and debtors' attorneys say.
"The credit card companies are wanting to push this
credit
on anybody that has a pulse," said Rajala, the Overland
Park
lawyer.
"I'm sure to them using their credit cards to go gamble
with
is just another version of using the cards. But when they
put
(ATMs) in a casino, it's like giving a bottle to an
alcoholic and
saying, `Don't get drunk.' "
One bank card issuer went to court to get nearly $90,000
from a client of Kerber's who acknowledged much of his
debt
was cash advances for gambling. The credit card company
wanted the bankruptcy discharged because it said the
debtor was running up charges he knew he could never pay.
Even as the availability of credit cards grows, the
credit card
industry is backing bills in Congress seeking to stiffen
laws to
make it more difficult to file bankruptcy.
Visa International in New York had no comment on
gambling-related bankruptcies. But a spokesman for
MasterCard International emphasized that bankruptcies for
credit card holders were relatively rare and usually tied
to
unpredictable life events.
"Only 1 percent of bank card accounts end up in
bankruptcy," said William Binzel, spokesman for
MasterCard
International in Washington. "No credit granter extends
credit
to anybody with the assumption that they're not going to
be
paid."
Binzel declined to comment on the effect of ATMs on
riverboats.
In recent years ATMs in casinos have been an issue in the
Missouri General Assembly and even within the gambling
industry.
Fahrenkopf said some members of his industry would like
to
see ATMs banned so gamblers would have to step away from
gambling tables. Others argue the machines are a customer
convenience.
Thompson, the UNLV professor who has studied the social
and economic effects of gambling, said ATMs in casinos
were
a "major problem" because they make it harder for the
compulsive gambler to take a cooling-off period.
"If someone gets in this little tizzy of compulsive
gambling,
they should get away from it and go home," Thompson said.
But the gambling industry's Fahrenkopf says banning ATMs
on
riverboats could be politically problematic.
"Every 7-Eleven in the country that sells lottery tickets
has
an ATM in it," he said. "Are we now going to remove all
ATMs
from convenience stores or lottery sites?"
What to do?
As more people accept gambling as legitimate adult
entertainment, the number of gamblers -- and the number
of
problem gamblers -- is likely to grow.
Dean Gerstein is a Washington-based researcher with the
National Opinion Research Center of the University of
Chicago, which researched the consequences of gambling
for
Congress last year. He said gambling debts were a small
part
of the bankruptcy problem -- today.
"But you are going to see more gambling-related
bankruptcies
when gambling becomes more accessible," Gerstein said.
"There is a high prevalence of bankruptcy among problem
gamblers."
Some researchers say moving ATMs out of the casinos and
changing bankruptcy laws to make it tougher to discharge
gambling debts might be part of the answer.
Edward Looney, executive director with the Council on
Compulsive Gambling of New Jersey Inc., says compulsive
gamblers need to pay back their debts as part of their
recovery.
Gambling awareness should be taught in schools and
prisons,
Looney said, and gambling advertisements should be
restricted like tobacco promotions.
In Kansas City, Fahrenkopf's American Gaming Association
has established the nonprofit National Center for
Responsible
Gaming. The center is providing millions of dollars in
research
grants to universities and others to study causes and
treatment of pathological gambling.
And even if the number of gambling-related bankruptcies
remains relatively limited in the bigger picture, each
case
may tell a tiny tragedy.
Some debtors interviewed by The Star, including Cathy,
said
they started gambling as an escape from stress.
In Cathy's case, it was a troubled marriage.
"It was like a drug. I could forget about my home
problems,"
she said. "But it sure didn't help our marriage."
Cathy, who has since emerged from Chapter 7 liquidation,
still goes to the riverboats and acknowledges losing $500
as
recently as April.
Now, however, she says her 15-year-old son confiscates
all
her money before she goes out the door.
"Somebody has to help me control it," she said. "If
someone
wants me to go to the boats with them, they have to pay.
I'd rather have something to show for it. Losing that
much
money is not OK. It's not OK.
"It hurts my heart."
To reach Joyce Smith, call (816) 234-7750 or send e-mail
to [EMAIL PROTECTED]
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