Since Obergefell, bankruptcy laws have treated all married couples the same, no matter the spouses' sexual orientation. As a result, same-sex couples have the right to choose whether they want to file for bankruptcy jointly with their spouse or separately.
Written by Attorney Karra Kingston.
Updated August 28, 2020
LGBTQ couples who are thinking about filing bankruptcy may need to consider some unique challenges when managing their debt, especially if they aren’t legally married. This article will discuss legal issues that LGBT people may encounter during a bankruptcy proceeding. Once you familiarize yourself with these issues, you’ll be in a more informed position to make the best debt management decisions for your circumstances.
Same-Sex Couples Can File Bankruptcy Together
In Obergefell v. Hodges, the United States Supreme Court ruled that same-sex couples have the legal right to marry. The Supreme Court decreed that all states within the United States must recognize same-sex marriage and that the exclusion of gay and lesbian couples from marriage denies them equal protection under the Fourteenth Amendment.
Since the Obergefell decision was handed down, bankruptcy laws have treated all married couples the same, no matter the spouses sexual orientation. As a result, same-sex couples, just like heterosexual couples, have the right to choose whether they want to file for bankruptcy jointly with their spouse or separately. To file a joint bankruptcy petition, bankruptcy law requires that individuals co-named in the petition must be legally married. There is no exception to this rule, no matter how long unmarried partners have been cohabitating. Before this landmark decision, only heterosexual spouses had the option to file bankruptcy with their spouse, leaving same-sex couples at a disadvantage when it came to filing for bankruptcy protection.
The Defense of Marriage Act
In 1996 the Defense of Marriage Act (DOMA) was enacted. Under DOMA, states were not required to recognize same-sex marriages, even if the couples had been legally married in another state. Under the Full Faith and Credit Clause, federal law required heterosexual marriages to be recognized by all states, but DOMA reinforced that the same parity need not be extended to same-sex couples. This double standard prevented same-sex couples from accessing numerous federal benefits. For example, under DOMA, same-sex couples didn't have the recognized right to file a joint bankruptcy in every state. This federal law infringed upon the human rights of LGBTQ Americans.
The Supreme Court Overturned DOMA
Obergefell overturned DOMA. The Supreme Court held that the Fourteenth Amendment requires all states to allow same-sex couples to marry and to recognize a lawful same-sex marriage performed in any state. As a direct consequence of this decision, same-sex couples can now access federal benefits and receive the same protections in marriage that heterosexual couples do.
You Must Be Legally Married to File A Joint Bankruptcy Petition
Bankruptcy laws require that couples who choose to file a joint bankruptcy must be legally married, whether they be same-sex couples or heterosexual couples. Individuals who are in domestic partnerships are not able to file a joint bankruptcy petition.
Deciding If You Should File Bankruptcy with Your Spouse
Before filing bankruptcy jointly with your spouse, you may want to consider whether it makes sense to do so. A variety of factors will influence whether filing Chapter 7 bankruptcy or Chapter 13 bankruptcy jointly with your spouse makes sense. For example, if your debts are listed only in your name, it may not make sense to file bankruptcy jointly with your spouse. If you decide to proceed with the bankruptcy process without your spouse, your non-filing-spouse’s credit will not be affected by your bankruptcy. However, you’ll want to consider that if you live in a community property state and each spouse has assets that are their sole and separate property. In that case, you may want to file jointly because the community discharge provisions contained in the Bankruptcy Code will be limited.
Something else to consider is the automatic stay. When an individual files for bankruptcy, an automatic stay is initiated. This process prevents creditors from continuing collection efforts against them. The automatic stay halts wage garnishment and repossession as well. Generally, the automatic stay only applies to the debtor filing for bankruptcy. Thus, if both you and your spouse are struggling with collection efforts, it may be best for both of you to file jointly.
In a community property state, it doesn't really matter whether only one spouse chooses to file for bankruptcy, as both spouses' property becomes part of the bankruptcy estate. Additionally, any property or debt acquired after the marriage began is considered community debt. In a community property state, when one spouse files bankruptcy, creditors who have claims against the community property are barred from going after the filing spouse and the non-filing spouse as a result of the automatic stay. Filers in community property states must list their spouse as a co-debtor on Schedule H of their bankruptcy forms. Moreover, these individuals must list the non-filing spouse's debt on the bankruptcy petition to put creditors on notice of the bankruptcy filing.
The Means Test was enacted by Congress to stop people who could otherwise pay their debts, from filing Chapter 7 bankruptcy and having their debts eliminated. The Means Test determines whether you qualify to file a Chapter 7 bankruptcy. The Means Test is, in part, calculated by taking your previous 6 months of income to get an average. That number is then compared to the household median income of similar size in the state you live in.
If your income is below the median household income, you should automatically meet the eligibility criteria to file a Chapter 7 bankruptcy. If you make more than the median income, you will have to move to the second part of the test, which deducts your reasonable expenses from your income. Individuals who still do not pass the Means Test after may need to file a Chapter 13 bankruptcy instead.
When calculating whether you are eligible under the Chapter 7 Means Test, you will need to include your family size and household income. If you are married, whether you and your spouse decide to file bankruptcy together or not, your income and any amount of your spouse’s income that is used to pay joint expenses will need to be included in baseline eligibility calculations. Thus, filing without your spouse can't be used as a way to get around Means Test requirements. Whether you are in a same-sex relationship or heterosexual relationship, the Chapter 7 Means Test is calculated the same way.
Depending on the type of employment that each of you has, it may be best if only one spouse files for bankruptcy. When a person files bankruptcy, it becomes public record. If one spouse has a job in a field that requires heavy security clearance, it may be best for them not to file if they don't need to. Most employers won't care about a bankruptcy filing. However, individuals who are considering employment for certain federal government positions, such as an FBI agent, may be required to go through a more rigorous background check.
Another reason filing bankruptcy without a spouse may be a good option is if your spouse owns real estate or personal property with equity. For example, if your spouse has a car titled in their name and there is no exemption to protect the car in a bankruptcy proceeding, it may be best for your spouse not to file bankruptcy jointly with you.
Same-sex couples and members of the LGBTQ community can benefit from having a bankruptcy attorney review their specific situation to help them decide what approach is best for their family.
Dealing with Exemptions
Bankruptcy exemptions can be found within the Bankruptcy Code and under state law. Exemptions allow filers to keep their property even though they cannot repay their creditors. As long as a filer's property falls under an exemption, the trustee assigned to the case can't sell it to pay off creditors. Any assets that are unexempt can be sold off to pay the filer’s creditors. Exemptions are specific to each state (unless the state you’re filing in allows you to opt for federal exemptions) and state laws vary greatly. For an asset to be exempt, the equity in the property must fall under an exemption. Equity is the value of the property minus the amount you owe on the property.
Married couples should think carefully about filing jointly if their state allows for double exemptions. Doubling bankruptcy exemptions allows people filing bankruptcy to double the amount of exemption available when they file a joint bankruptcy case. Doubling an exemption can allow filers to keep more of their property because both spouses can each take the full exemption amount. For example, say that you and your spouse are married and file a joint bankruptcy. If you jointly own one car worth $10,000 and exemption in your state is $6,000 per individual, you can use each one of your exemptions to protect the full $10,000 value of your car.
If you are considering bankruptcy, and don't know if you and your spouse should file together, you may want to speak to a personal bankruptcy attorney who can help you file your case and determine whether filing together or separate is better for your financial situation.
If you don't have the money to hire an bankruptcy lawyer to give you legal advice, you may be able to file for bankruptcy on your own. Depending on the complexity of your case, it may be ideal to meet with a bankruptcy attorney for a free consultation - especially when considering the pros and cons of filing jointly or as an individual.
If you are worried about your finances and can't afford to hire a lawyer, you are not alone. Law firm services can be expensive, especially when you are already financially struggling. Our free online website provides all the tools you’ll need to file bankruptcy without hiring a lawyer.
- (n.d.). Obergefell v. Hodges, 576 U.S. 644 (S. Ct. 2015). Retrieved from https://www.oyez.org/cases/2014/14-556