Bankruptcy

Bankruptcy is a legal process designed by Congress to give debtors a fresh start from debts they can’t afford to pay. It allows them to “discharge,” or eliminate, certain debts, and prevents creditors from taking further action to collect on those debts.  There are specific rules about which assets you can keep if you go through bankruptcy, and which debts you can discharge.  Some kinds of debt are never dischargeable.  If you are married, you have different options for bankruptcy filings.  Now that the Defense of Marriage Act (DOMA) has been struck down, this guidance provides basic information about bankruptcy filings, how being married matters in bankruptcy proceedings, and what married same-sex couples can expect.  Consult with a professional bankruptcy advisor for information and advice about your specific situation.advisor for information and advice about your specific situation.


TABLE OF CONTENTS

What kinds of bankruptcy proceedings are available to individuals?

How can marriage or having been married impact a bankruptcy filing?

Who will be recognized as married for bankruptcy filing purposes?

How can I find out more about how bankruptcy works, and how to file?


What kinds of bankruptcy proceedings are available to individuals?

Married people can file for bankruptcy either singly or jointly (where both spouses file together).  Businesses also can file for bankruptcy. There are many different kinds of bankruptcy proceedings.  Chapter 7 and Chapter 13 are most commonly used by individuals.

In a Chapter 7 bankruptcy, the debtor’s assets are sold and any proceeds are used to repay creditors.  The debtor is allowed to keep certain property, known as “exempt” property.  What property counts as “exempt” is a matter of either state or federal law.  With some important exceptions, debts will be discharged, even if there are no non-exempt assets.  Recent changes to the bankruptcy laws mean that if a debtor’s income (including a spouse’s income) is above a certain amount, a Chapter 7 filing will be converted to a Chapter 13 filing.

Under a Chapter 13 bankruptcy, you will be required to follow through on a court-approved payment plan to repay your debts.  You will be protected from creditors while the plan is in effect, and how much you have to repay will depend in part on how much of your assets are exempt.

For either kind of bankruptcy, there are limits on how frequently you can file. 

Because bankruptcy can damage your credit and have other serious consequences, it is very important to fully understand the advantages and disadvantages of filing.  For more information, consult with a reputable bankruptcy attorney.

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How can marriage or having been married impact a bankruptcy filing?

Married couples can file a joint petition for bankruptcy.  This means that your combined property and debts are part of the same bankruptcy, and the debts of both spouses are discharged.  Filing a joint bankruptcy rather than two individual bankruptcies may result in financial savings, since filing bankruptcy requires paying a filing fee to the court, and may also involve paying for a lawyer. It also may simply be more convenient to proceed in a single filing, rather than two bankruptcy filings.

There are other ways that marriage matters in a bankruptcy filing. If you are married, your spouse’s income will be included in determining whether you can file for Chapter 7 bankruptcy.  And if you were married and get divorced, debts owed for “domestic support obligations” (such as alimony, maintenance or support) are non-dischargeable and get priority in bankruptcy, which means they will get paid off first if there are assets to pay them.

While it may make sense for a married couple to file jointly in many cases, sometimes, you or your spouse might be better off filing alone.  If only your spouse has significant debt, for example, it might make more sense for your spouse to file individually.  If you have significant joint debt, on the other hand, filing only one petition could mean that creditors are still free to go after the other spouse.  The rules differ somewhat in community property states.  For more information on how to assess whether you are better off filing singly or jointly, consult with a reputable bankruptcy attorney.

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Who will be recognized as married for bankruptcy filing purposes?

The federal bankruptcy courts administer bankruptcy proceedings.  These are governed by the Bankruptcy Code, but state law may determine which assets are part of the bankruptcy estate, and which are “exempt” (which means you get to keep them).  The bankruptcy law says that which state’s law applies to determine your exemptions depends on how long you have lived in the state before you file for bankruptcy.

  • If you live in a state that respects your marriage: Now that DOMA has been overturned, married same-sex couples living in states that respect their marriages will be considered married for bankruptcy purposes.
  • If you live in a state that doesn’t respect your marriage: After the Windsor decision, the Department of Justice U.S. Trustee Program will interpret the terms “spouse,” “marriage,” and “husband and wife” to include legally married same-sex couples. The Department will recognize any same-sex marriage that was legal in the state where it was celebrated, even if you currently live in a state that does not recognize your marriage.  If you encounter any problems, contact one of the legal organizations listed below.

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How can I find out more about how bankruptcy works, and how to file?

One place to start is this website from the federal courts, which administer bankruptcies:

For more information, see:

For information about how to file, see:

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Contact:

American Civil Liberties Union

National Center for Lesbian Rights

Lambda Legal

Gay & Lesbian Advocates & Defenders


This series of fact sheets produced together by:
American Civil Liberties Union | Center for American Progress | Family Equality Council | Freedom to Marry | Gay & Lesbian Advocates & Defenders | Human Rights Campaign | Immigration Equality | Lambda Legal | National Center for Lesbian Rights | National Gay and Lesbian Task Force | OutServe-SLDN.

·         Post Windsor,  the Department of Justice U.S. Trustee Program will interpret the terms “spouse,” “marriage,” and “husband and wife” to include married same-sex couples. This applies to couples that are legally married under any state’s law. As long as you were married in a state that legally respects your marriage, you will be considered married for bankruptcy purposes regardless of where you live.