Can Same-sex Married Couples File a Joint Bankruptcy Petition in New York?

The short answer is Yes, No, and Maybe.

Now that New York has passed a law allowing same-sex marriage in the State, a number of issues will need to be sorted out by various state agencies. Some issues will inevitably fall to the judiciary for resolution. One of the trickiest areas will be the tension between the State’s legal recognition of same-sex marriage and the odious federal legislation known as DOMA or The Defense of Marriage Act.  Nowhere is the tension between DOMA and same-sex marriages more pronounced than in the realm of bankruptcy law, where federal courts continually blend elements of state and federal law.

In essence, DOMA prevents the federal government from recognizing same-sex marriages in any context. (It also gives states the option of  refusing to recognizing same-sex marriages which take place in other states.) Thus, the United States Bankruptcy Courts and the Office of the United States Trustee are both governed by DOMA. The ability to file a joint petition in a bankruptcy proceeding is a significant benefit to couples for several reasons, including the right of spouses to aggregate their property exemptions. Until recently, the only prior ruling on this point held that a same sex-couple could not file a joint bankruptcy petition.

In this prior case, In re Kandu, 315 B.R. 123 (Bankr. W.D. Wash. 2004), the bankruptcy court rejected a joint filing by a same-sex couple who were married in Canada but resided in Washington. The court rejected the same-sex filing and in doing so also rejected the claim that DOMA was unconstitutional under the Equal Protection clause of the 5th Amendment.

However in a recent decision in New York’s Southern District, U.S. Bankruptcy Judge Cecelia G. Morris rejected the United States Trustee’s motion to dismiss a joint bankruptcy filing by a New York same-sex couple who were married in Vermont shortly before filing their petition. The ruling in In re Theresa L. Somers and Rosemary Caggiano, Debtors, 10-38296, was decided on May 4, 2011. Judge Morris noted that the constitutionality of DOMA has been questioned in recent second Circuit opinions. Judge Morris went on to rule that the mere existence of DOMA does not satisfy the “cause” requirements for a dismissal under Section 707(a).

The opinion of Judge Morris is available here.

So where does that leave the law now? What should same-sex married couples do if they could benefit from filing a joint bankruptcy petition? Several factors still weigh against filing a joint petition. First, DOMA remains the law of land whether we agree with it or not. Second, it is not clear if other bankruptcy judges will follow the approach of Judge Morris. Finally, and from a more practical standpoint, most debtors file for bankruptcy in order to get a fresh start. They usually want a swift conclusion to their case and they want certainty of outcome. A joint petition filed by a same-sex couple might not produce a clear and swift determination.

On the other hand, the constitutionality of DOMA is highly suspect, and the Obama administration is no longer defending it. It is also unlikely that the U.S Trustee will continue to aggressively challenge joint filings of same-sex couples. Adding to the momentum in favor of same-sex filings (and against DOMA) is the fact that twenty federal bankruptcy judges from the Central District of California joined together on June 13, 2011 in an opinion favoring the equal protection rights of such marriages under the Fifth Amendment.

In most cases, a joint filing will not be absolutely necessary. An experienced attorney will probably be able to achieve the same results with separate individual filings. So prudence dictates that until the law is firmly established, lawyers and debtors should avoid joint filings unless there are substantial benefits that would result from this type of filing. In that case, practitioners can take encouragement from the gutsy ruling of Judge Cecelia Morris in New York’s Southern District.