The Codes Policies Go Bankrupt When it Comes to Petitions Filed by Same-Sex Couples

By: Jacklyn A. Serpico
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Federal law continues to have a disparate impact on same-sex couples filing bankruptcy petitions. In In re Roll,[1] the debtors, Roll and Currie, were a same-sex couple that filed separate bankruptcy petitions under chapter 7. They were residing together in the same household, along with Roll’s adult niece. The United States Trustee moved to dismiss the debtors’ separate petitions pursuant to section 707(b)(1) of the Bankruptcy Code based on the presumption of abuse of chapter 7.[2] The United States Trustee argued that, despite filing separate petitions noting their own individual finances, the couple’s finances were in fact shared, and thus, the debtors “should be treated as a single economic unit.”[3] The United States Trustee argued that the debtors’ combined income was sufficient to pay off their debts, and as such, their individual petitions listing insufficient separate finances constituted an abuse of chapter 7.[4] Yet, the Bankruptcy Court for the Western District of Wisconsin denied the motion to dismiss because the United States Trustee failed to meet the evidentiary burden demonstrating the debtors’ income and expenses to support a finding of abuse.[5] The court further discussed that the totality of the circumstances did not support a finding of abuse merely because the couple lived together, shared certain resources, and together had the potential ability to pay creditors.[6] More importantly, in emphasizing that only married persons may file joint petitions,[7] the court noted that same-sex marriages are prohibited under the Wisconsin Constitution and that federal law prohibits a federal court from recognizing any such marriage.[8] Consequently, the court reasoned that Roll and Currie had no choice but to file separately, and thus, have their income assessed independently of one another for purposes of determining abuse under chapter 7.
 
Federal law, specifically the Defense of Marriage Act (“DOMA”),[9] does not recognize same-sex marriage and allows states to disregard such marriages performed in other states. DOMA defines “marriage” as “a legal union between one man and one woman as husband and wife” and “spouse” as “a person of the opposite sex who is a husband or a wife.”[10] Because bankruptcy is governed by federal law, same-sex couples are ineligible to file a joint petition regardless of whether the marriage was legally valid in the state where it was performed.[11] Therefore, although a state might legalize same-sex marriage or recognize a domestic partnership, a same-sex couple still will not be permitted to file a joint petition under section 302(a).[12]  Interestingly, prior to DOMA’s enactment, courts had recognized that same-sex couples could be jointly assessed under the Code if a state legalized same-sex marriage.[13] Although courts have upheld the constitutionality of DOMA,[14] proposed legislation seeks to permit same-sex couples who are legally married to file joint bankruptcy petitions.[15] Essentially, the bill would repeal DOMA, granting same-sex couples who are lawfully married, in states that recognize same-sex marriage, the same rights under federal law, including bankruptcy, as opposite-sex couples.[16]
 
Whether filing separate petitions, as done by the debtors in In re Roll, or filing jointly, the future remains unclear for same-sex couples in bankruptcy. However, it appears clear that current federal law, as applied to same-sex couples filing for bankruptcy, contradicts the underlying policy of bankruptcy.[17] Specifically, the Bankruptcy Code provides for the protection of creditors by consolidating assets into an estate for the orderly repayment of debt.[18] By preventing same-sex couples from filing jointly, the size of the asset pool available to creditors is restricted, and thus, the potential sum of money available for repayment is limited.[19] This concept was illustrated in In re Roll.[20] It appeared that the debtors shared finances and together had the ability to pay their debts, yet they were required to file separate chapter 7 petitions, shielding them from repaying their creditors.[21] Although restricting same-sex couples from filing joint petitions may benefit the couple because one partner does not have to worry that the other’s property will be considered part of the bankruptcy estate, excluding possible sources of repayment for same-sex couples filing for bankruptcy runs counter to the bankruptcy law’s objective of ensuring payment to creditors.
 


[1] 400 B.R. 674 (Bankr. W.D. Wis. 2008).
[2] Id. at 675; see 11 U.S.C. § 707(b)(1) (2006) (“After notice and a hearing, the court . . . on a motion by the United States trustee . . . may dismiss a case filed by an individual debtor under this chapter . . . if it finds that the granting of relief would be an abuse of the provisions of this chapter.”).
[3] In re Roll, 400 B.R. at 679.
[4] Id.; see 11 U.S.C. § 707(b)(7)(A) (2006) (prohibiting United States Trustee from filing motion to dismiss for abuse if currently monthly income of debtor and debtor’s spouse combined is equal to or less than “the highest median family income of the applicable State for a family of the same number or fewer individuals”).
[5] In re Roll, 400 B.R. at 679.
[6] Id.(“It may be that the debtors, who have significant, entirely commingled, aggregate income, have an ability to pay their creditors. But something more is required to support a finding of abuse premised on the totality of the circumstances.”).
[7] 11 U.S.C. § 302(a)(2000) (outlining when joint case in bankruptcy may be filed).
[8] Wis. Const. Art XIII, § 13 (“Only a marriage between one man and one woman shall be valid or recognized as a marriage in this state.”); Defense of Marriage Act, 1 U.S.C. § 7 (2006); In re Roll, 400 B.R. at 679.
[9] 1 U.S.C. § 7.
[10] 1 U.S.C. § 7 (emphasis added); see Jill C. Rush, Unequal Treatment and Creditor Frustrations: The Limited Impact of Legalizing Same Sex Marriage, 21 Emory Bankr. Dev. J.743, 744 (2005).
[11] See 11 U.S.C. § 302(a) (“A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse.” (emphasis added)).
[12] 11 U.S.C. § 302(a) (providing joint case may be filed by debtor and debtor’s spouse).
[13] In re Allen, 186 B.R. 769, 773 (Bankr. N.D. Ga. 1995) (holding debtors ineligible to file joint bankruptcy petition because not legally married and allowed 20 days to dismiss one co-debtors from case or face dismissal of entire case).
[14] In re Kandu, 315 B.R. 123, 148 (Bankr. W.D. Wash. 2004) (dismissing joint chapter 7 petition filed by lesbian couple married in Canada).
[15] Respect for Marriage Act of 2009, H.R. 3567, 111th Cong. § 3 (2009) (“For the purposes of any Federal law in which marital status is a factor, an individual shall be considered married if that individual’s marriage is valid in the State where the marriage was entered into or, in the case of a marriage entered into outside any State, if the marriage is valid in the place where entered into and the marriage could have been entered into in a State.”).
[16] Id.
[17] See Rush, supra note 10, at 770 (“Whether an individual has a legal right to be married, or chooses to take advantage of the right if such a right exists, should not be determinative of an individual’s ability to repay debts.”).
[18] A. Mechele Dickerson, Lifestyles of the Not-So-Rich or Famous: The Role of Choice and Sacrifice in Bankruptcy, 45 Buff. L. Rev. 629, 633 (1997).
[19] Rush, supra note 10, at 771–72.
[20] See In re Roll, 400 B.R. at 675.
[21] See id.