The Supreme Court made a sweeping statement today when it ruled that the Constitution guarantees a right to same-sex marriage. This obviously has far reaching applications into many areas of our lives, including bankruptcy laws. So let’s look at how it affects bankruptcy and gay marriage.
Bankruptcy is a federal matter. All petitions to file bankruptcy are filed in the local United States District Court. Texas state and county courts are not involved. For the most part, bankruptcy follows federal rules. However, property rights are generally defined by Texas law.
Texas does not recognize gay marriage or marriage for same sex couples. Texas is not alone. As this web site shows, Texas is one of thirteen states that currently does not recognize gay marriage. This Supreme Court opinion could change all of that.
Married couples can file joint bankruptcy protections and utilize bankruptcy exemptions to protect their assets and income. In many cases, these exemptions double for married couples. So there is some incentive to file a joint petition; to maximize the protections.
As it previously stood, a gay couple could not file a joint case. This could cause them to have assets that were unprotected and subject to liquidation in a chapter 7 bankruptcy. This started to change in the last couple of years as Court opinions starting coming down that federal laws were be neutral on this issue. As bankruptcy is a federal matter, gay couples were able to file for bankruptcy protection and choose to use the federal rules of protection.
However, Bankruptcy and Gay Marriage collided when it came to using Texas rules. The Texas protections are much higher for debtors’ homesteads and tools and equipment used in their sole proprietorship businesses. There were many concerns that because Texas did not recognize gay marriage that an argument could be made that a same-sex couple could not utilize the more favorable Texas exemption protections.
But with the Supreme Court ruling that the constitution guarantees a right to same sex marriage, this now opens the door for a gay couple to use the Texas exemptions. Or makes it at least much more clear. It would be unfair, and unconstitutional for a gay couple to not be afforded the same joint bankruptcy protections as a heterosexual couple.
Naturally, to be afforded the protections of a joint case, the gay couple also is subject to the unique characteristics that comes with filing a joint bankruptcy petition. Joint Household Income many times determines whether a couple can file Chapter 7 bankruptcy or be forced into a Chapter 13 repayment plan. As many gay couples earn higher than the national average, we could see more same-sex couples in chapter 13 cases. Also, the bankruptcy protections generally have dollar limits. This means that a same sex couple that owns a lot of assets or assets that are highly valued, could be forced into a Chapter 13 payment plan to protect those assets.
Proponents of Bankruptcy and Gay Marriage can now rejoice the Supreme Court decision. It will be interesting to see how it plays out in the bankruptcy realm.
This new ruling provides about as many questions about bankruptcy and gay marriage as it does answer them. If you are a same sex couple contemplating filing a joint bankruptcy case, please give us a call. We have handled a number of cases for gay couples and are able to go over the items that are unique to your specific situation. This is NOT an area you want to travel alone. You need an experienced bankruptcy firm to help you navigate the muddy waters.