While growing numbers of people are seeking help through bankruptcy, gay and lesbian families face additional hurdles because the Bankruptcy Code is federal law and does not recognize same-sex marriage. Same-sex couples cannot declare a “joint bankruptcy” under federal law. Instead, each partner must file his or her own bankruptcy petition and protect those joint assets the best they can through individual state and federal exemptions. While straight married couples are jointly responsible for each other’s debts and assets under state law, the federal Bankruptcy Code does not provide married gay couples the same safe harbor exemptions and protection of family assets.
The Bankruptcy Code is complex and constantly changing, and filing for bankruptcy can be a time-consuming and confusing undertaking. It is even more important for gays and lesbians to choose a bankruptcy attorney familiar with the unique issues facing GLBT bankruptcy filers.
Homeowners facing foreclosure often file for Chapter 13 bankruptcy, which allows them to repay any late mortgage payments over three to five years. Married straight couples who acquire property together can own the property as tenants-by-the-entirety. With this form of ownership, each spouse owns 100 percent of the property and the right to possess the entire premises, subject to the parallel right of the other spouse. Tenancy-by-the-entirety is a form of ownership available to same-sex couples in the District of Columbia, but not in either Maryland or Virginia. In the District of Columbia, same-sex couples have an unlimited exemption in bankruptcy for the entire home.
By contrast, GLBT couples in Maryland or Virginia who wish to jointly own property must instead own either as joint tenants or tenants in common. Neither of these forms of ownership provides the same protections against creditors and different rules apply in bankruptcy. For instance, if a creditor obtains a judgment against a joint-owner or co-owner, the creditor can ask a court to “partition” the property interests of the owners. If the court allows the partition, the creditor can force the sale of the debtor’s interest, leaving the remaining partner with a stranger as a co-owner. Moreover, if only one homeowner/ spouse files bankruptcy and the property is held in both names, then the property is fully protected. If both file bankruptcy, however, the property is not protected and may be liquidated to pay back creditors. By contrast, property held by straight tenants-by-the-entirety is protected from all debts except IRS tax debt.
Despite these differences, bankruptcy is an excellent option for gays and lesbians who have become financially overextended. Bankruptcy is a very personal matter, however, and GLBT debtors should make sure that they have a good working relationship with their attorney and feel comfortable talking to him or her. A high comfort level is extremely important since your lawyer will be defending you and your rights in court.
Comments to bvlee@lee-legal.com or visit http://www.lee-legal.com/ for more information.
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