## Facts

- Darlene K. Baum filed an individual Chapter 7 petition in early 2007 after accruing approximately $40,000 in credit-card debt tied to online gambling over a three-to-four-month period in 2006.
- Baum began online gambling with “play money,” quickly shifted to real-money wagers, and funded gambling through credit cards accepted by gambling sites.
- By November 2006, Baum stopped gambling, began counseling, and took steps to prevent relapse, including canceling home internet service and limiting email use.
- Baum sought non-bankruptcy solutions, consulting an attorney friend and evaluating several debt-consolidation services; proposed payments (about $500 per month) were not affordable.
- After continued inability to manage the debt, Baum retained bankruptcy counsel and filed for Chapter 7 relief.
- The United States Trustee moved to dismiss under 11 U.S.C. § 707(b), asserting abuse based on bad faith and the totality of the circumstances.
- The court held an evidentiary hearing; no post-hearing briefs were filed.

## Issues

1. Whether Baum filed her Chapter 7 petition in bad faith under 11 U.S.C. § 707(b)(3)(A) based on incurring substantial online gambling debt allegedly without intent or ability to repay.
2. Whether the totality of the circumstances of Baum’s financial situation demonstrated abuse under 11 U.S.C. § 707(b)(3)(B).

## Decision

- The court denied the United States Trustee’s motion to dismiss.
- The court held the UST did not meet its burden to prove bad faith under § 707(b)(3)(A).
- The court held the UST did not meet its burden to prove abuse under the totality-of-the-circumstances test in § 707(b)(3)(B).
- The court treated Baum’s cessation of gambling, counseling, and efforts to address debts outside bankruptcy as consistent with good faith.
- The court considered, as context, that enforceability of online gambling-related obligations could be uncertain under Ohio law and relevant federal restrictions, which weakened the claim that discharge was abusive.

## Legal Principles

- Under 11 U.S.C. § 707(b)(3), when dismissal for “abuse” is sought, courts consider (A) bad faith and (B) the totality of the circumstances of the debtor’s financial situation; the movant bears the burden of proof.
- In assessing bad faith based on prepetition conduct, a central consideration is whether the debtor intended to repay the debts when they were incurred, evaluated through testimony and surrounding conduct.
- The totality-of-the-circumstances inquiry is not resolved by whether the debts arose from “sympathetic” events; it includes ability to pay, efforts to repay or seek alternatives, and postpetition indicators of responsibility.
- Evidence of stopping harmful conduct and pursuing rehabilitation and repayment options can rebut an inference that bankruptcy was filed as a calculated device to shift self-inflicted losses to creditors.
- Potential questions about the legal enforceability of the underlying obligations may be relevant context when evaluating whether seeking a discharge is abusive, even if not dispositive.

## Conclusion

The court refused to dismiss the Chapter 7 case under § 707(b)(3), finding insufficient proof that the debtor acted in bad faith or that her financial circumstances, viewed as a whole, made Chapter 7 relief abusive despite substantial online gambling-related debt.


In re Baum, 386 B.R. 649 (Bankr. N.D. Ohio 2008)