Every year, couples throughout New York file for joint bankruptcy, but there’s a persistent presumption that these are heterosexual unions and that gay couples cannot legally file together. If they want relief from their debts, then they must file separately.
It’s not true and hasn’t been since the New York State Legislature passed the Marriage Equality Act in the summer of 2011. All couples, gay and straight, can file bankruptcy together and use state or federal exemptions (both of which allow them to double the coverage) to protect their assets. All dischargeable household debt is eliminated, allowing them to start afresh together.
The misunderstanding over gay rights in bankruptcy stems from the days before same-sex couples could legally marry. Bankruptcy is a federal matter, so even if a state recognized a same-sex civil union as legitimate, federal law did not. It wasn’t until gay marriage became legal across the board that the limitation disappeared. Today, any couple can file together, provided they are married: common law relationships and civil unions still do not qualify.
The benefits of filing together vs. separately
Although both spouses are legally allowed to go bankrupt individually, there are many benefits to filing together. They can protect more marital assets by using the double exemptions for joint filers. They will also save money on attorney fees and court costs. Only one set of appropriate documentation is necessary, and the couple can attend any required hearings together.
Sometimes, however, it may be better to file individually. When a couple files a joint petition, all of their assets, both jointly and separately owned, become part of the bankruptcy estate. Although the exemptions are doubled, the value of their combined property may exceed the available protection and leave valued assets open to seizure in a Chapter 7 filing.
Another issue concerns spousal deductions on the Chapter 7 means test. When spouses file individually, they may be able to use these deductions in both cases, resulting in more protection and a better outcome. Separate filing can also be a better idea if one spouse owes a lot of priority debt, such as taxes and child support, all of which must be paid in full in a Chapter 13 bankruptcy. These debts can increase monthly repayment amounts, creating a financial hardship for the lesser-earning spouse.
Whether you are gay or straight, the law allows you to file a joint bankruptcy with your spouse in New York. The process can be complicated, however, depending on the nature and amount of your joint debt. Working with an experienced New York bankruptcy attorney will help you decide on the best way to solve your joint marital debt issues so that you can rebuild financially together. Jayson Lutzky is a Bronx bankruptcy lawyer with over 35 years of legal experience. He offers free in-office initial consultations. To set up an appointment, call 718-329-9500 or visit www.MyNewYorkCityLawyer.com.