Individuals who identify as LGBT face a number of unique obstacles in every area of their lives, including filing for bankruptcy. Statistics compiled by the William Institute have revealed that the poverty rate for same-sex couples is higher than for individuals in heterosexual relationships. When a person is unable to meet daily living expenses, it is common to end up facing debt, which can lead to bankruptcy. The purpose of this article is review some of the challenges faced by LGBT individuals when it comes to bankruptcy, including situations in which one or both spouses in a same-sex marriage file for bankruptcy.

Filing for Bankruptcy as a Same-Sex Couple

In the case of Obergefell v. Hodges, the United States Supreme Court held that the Fourteenth Amendment requires all states in the country to permit same-sex couples to marry as well as to recognize same-sex marriages from any other state. As a result of this decision, bankruptcy law now regards same-sex couples in the same way as married heterosexual couples. Unmarried LGBT individuals, however, are unable to file joint bankruptcy petitions. This means that even if an LGBT couple has been together for years or decades, they will still be unable to file for bankruptcy jointly.

Same-Sex Couples and the Means Test

No matter if a same-sex or heterosexual married couple is involved, the means test used to determine eligibility for Chapter 7 bankruptcy remains the same. As a result, if a same-sex couple is married, the income of both parties influences income calculations. Conversely, if a same-sex couple is not married and lives together, only the amount that the non-filing partner contributes to the couple’s household expenses will be considered under the means test.

Filing for Bankruptcy When a Same-Sex Spouse Does Not

In situations in which only partner in any marriage owes debt, it is often a wise idea for only that individual to file for bankruptcy. Only the spouse who files for bankruptcy will have his or her debts discharged, and the other spouse’s debts will remain. Because California is a community property state, a single same-sex spouse sometimes might also benefit from filing for bankruptcy due to debts that are shared between the couple. This is because in community property states, all property belonging to a married couple is classified as part of a bankruptcy even if one spouse files for bankruptcy.

Deciding on Chapter 7 or Chapter 13 Bankruptcy

There are advantages to both Chapter 7 and Chapter 13 bankruptcy, which include the following:

• Chapter 7. In accordance with Chapter 7 bankruptcy law, once a spouse’s debts are discharged, creditors can still attempt to collect from the other spouse. One of the primary advantages to Chapter 7 bankruptcy is that it frequently takes 90 to 100 days to finalize the process, while Chapter 13 bankruptcy often takes several years. Chapter 7 can also be helpful to temporarily block creditors from collecting on a debt.
• Chapter 13. Some same-sex spouses decide to pursue Chapter 13 bankruptcy, however, which involves the creation of a repayment plan. After plans are made to repay debts, creditors will frequently leave the non-filing same-sex spouse alone unless the spouse who filed for bankruptcy falls behind on payments  Some same-sex spouses select Chapter 13 bankruptcy because it can be helpful in blocking foreclosure of a family home as well as prevent creditors from taking any type of action to collect on a debt. Additionally, some creditors view Chapter 13 bankruptcy in a more favorable light than Chapter 7 bankruptcy, which means that a person’s credit score might not be as adversely affected. If a person fails to adhere to a Chapter 13 repayment plan, however, he or she could end up facing serious penalties including the loss of assets.

Same-Sex Couple and Bankruptcy Exceptions

When one spouse in a same-sex marriage files for bankruptcy, this often does not affect the other spouse. There are, however, exceptions. In cases involving joint debt, it is common for one spouse’s debt to appear on the other spouse’s credit report. Any joint debts that are discharged in bankruptcy, however, will also be discharged for the non-filing spouse.

Speak with a Skilled Bankruptcy Attorney

The bankruptcy process is particularly complex. If you have questions or concerns about this process, do not hesitate to contact attorney Melanie Tavare today to schedule a free initial consultation.