20 Jun Bankruptcy Debtor and DOMA: The Gay Spousal Income Conundrum
An individual same-sex married person who files bankruptcy faces a choice whether to include spousal income for purposes of determining how much unsecured creditors could receive from the bankruptcy case. This choice is not available to the heterosexual married debtor due to an intended consequence of Congressional legislation that requires the heterosexual married debtor include such income.
Moreover, the decision is independent of whether same-sex married couples can file joint bankruptcy, as is occurring in more courts today. And, this analysis does not consider community property states, though perhaps it should if Congress persists with its definition of marriage. Caution, this is opinion and the laws of your state may vary.
From Aliceâ€™s Adventures in Wonderland by Lewis Carroll:
[Alice] â€œWould you tell me, please, which way I ought to go from here?â€
â€œThat depends a good deal on where you want to get to,â€ said the Cat.
Income over certain limits can prevent a bankruptcy debtor from obtaining a chapter 7 discharge of debt and can extend a 3-year chapter 13 case into a 5-year case, thereby increasing the amount paid to unsecured creditors and the trustee.
Bankruptcy Form B22, both B22A in chapter 7 and B22C in chapter 13, requires a married debtor to include spousal income to determine how much debtor must pay unsecured creditors. Depending on various factors, the amount of spousal income added to the calculation can be reduced on account of some spousal expenses, though not all expenses qualify.
The Defense of Marriage Act [DOMA] is a federal law, found at Title 1 U.S.C. 7, which defines marriage as being only between spouses of the opposite sex.
Attorney General Eric Holder wrote a letter informing Speaker of the House John Boehner that the President of the United States believed DOMA could not withstand a constitutional test against discrimination against gays. â€œ[T]he legislative record underlying DOMAâ€™s passage contains discussion and debate that undermines any defense under heightened scrutiny. The record contains numerous expressions reflecting moral disapproval of gays and lesbians and their intimate and family relationships â€“ precisely the kind of stereotype-based thinking and animus the Equal Protection Clause is designed to guard against.â€
Is DOMA dead or isnâ€™t it? It is too soon to tell. Here is more from the Holder Letter, â€œNotwithstanding this determination, the President has informed me that Section 3 will continue to be enforced by the Executive Branch. To that end, the President has instructed Executive agencies to continue to comply with Section 3 of DOMA, consistent with the Executiveâ€™s obligation to take care that the laws be faithfully executed, unless and until Congress repeals Section 3 or the judicial branch renders a definitive verdict against the lawâ€™s constitutionality.â€
Despite recent bankruptcy court cases criticizing DOMA and permitting same-sex married couples to file joint bankruptcy cases that have been ordinarily reserved only to heterosexual married couples; DOMA has not been ruled unconstitutional. It remains the law of the land, at least for now.
The Department of Justice will continue to enforce DOMA until and unless Congress or the Court system says otherwise.
Same-sex marriage or civil union exists under various state laws.
In bankruptcy, state law and federal law are in conflict on the issue of marriage.
A married person filing an individual bankruptcy must complete Form B22, the form that calculates how much money, if any, must be paid to unsecured creditors. A heterosexual married debtor filling out Form B22 has to include income received by a spouse on that form.
By definition, marriage under federal law is limited to heterosexual couples, according to DOMA. Consequently, a person who is same-sex married under state law and who files bankruptcy should not be compelled to include spousal income on B22, because DOMA does not recognize that person as being married. And as Attorney General Holder indicated in his letter to Congress, the government will continue to enforce the Defense of Marriage Act.
Even though that person is married under state law, DOMA protects the gay or lesbian married debtor from having to include spousal income for distribution to creditors in bankruptcy because federal law, according to DOMA, does not recognize that person as being married. To rule otherwise, a court would have to overrule DOMA.
In practice, a same-sex married debtor could voluntarily choose to include spousal income when determining whether that income should be used to pay creditors. In that case any challenge would have to come from an unlikely source â€“ a creditor, the trustee or the court. It would be highly unusual that any one of the three would try to prevent a debtor from paying more money to creditors than required, regardless of the definition of marriage.
Andy Miofsky, Esq.
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