14 Jun Court Holds that Same Sex Married Couple can File a Joint Bankruptcy Petition
According to an opinion signed, extraordinarily, by 20 of the 24 judges of the U.S. Bankruptcy Court for the Central District of California, based in Los Angeles, the Defense of Marriage Act (“DOMA”) is unconstitutional insofar as it bars same-sex couples who are legally married under state law from filing joint bankruptcy petitions. Under the Bankruptcy Code, only married couples can file joint petitions. But according to DOMA, federal law (of which the Bankruptcy Code is a part) recognizes as married only heterosexual couples.
While the Department of Justice has stated that it would no longer attempt to enforce DOMA, it did (through the Office of the U.S. Trustee) in the case of Gene Balas and Carlos Morales, a legally married gay couple. Their case is a typical Chapter 13 bankruptcy, where the Debtors filed in order to restructure their finances through a Chapter 13 plan after they had suffered hardship “following numerous episodes of illness, hospitalization and extended periods of unemployment.” The only impediment to confirmation of their plan was that because they were both male, the U.S. Trustee asserted that they could not file a joint petition. The court disagreed.
What does this mean? If it is followed in other courts, legally married same-sex couples can file joint bankruptcy petitions. Apart from the desire of same-sex married couples to be treated equally, this is certainly a benefit in terms of convenience and cost-savings, as it allows one case instead of two to be filed. And in a Chapter 13 context, two plans in one household can create serious problems in allocating household income between the two cases.
But it does take away an advantage — perhaps an unfair one — that same-sex married couples would have under the means test if their marriage is not recognized for federal bankruptcy purposes. As Massachussets Bankruptcy Lawyer Jed Berliner has written, treating same-sex couples as roommates has big advantages in allocating household income to the means test, as married individuals must include all income of both spouses in determining whether they are above the median income, while roommates must only include contributions from the other roommate to the household expenses. As this determines the minimum length of a Chapter 13 plan (36 or 60 months) and whether the debtor is subject to the rest of the means test, filing as roommates has a significant advantage. This decision may result in the loss of this benefit.
There are now at least 5 states (Connecticut, Iowa, Massachusetts, New Hampshire, and Vermont) plus the Washington DC, and many foreign jurisdictions, where same-sex couples can legally marry. And at least 3 more states (New York, Rhode Island and Maryland) recognize same-sex marriages validly performed elsewhere. So this opinion could be important if followed in bankruptcy courts in those states and the District of Columbia.
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