Gay Marriage and Bankruptcy

The nation’s largest federal bankruptcy court has declared that the 1996 Defense of Marriage Act is unconstitutional. The Defense of Marriage Act allows only male-female couples to claim federal marriage benefits and authorizes states to deny recognition to same-sex couples legally wed elsewhere.

The money saving benefits given to male-female married couples include; joint income tax returns, Social Security survivors’ payments and the right to sponsor a spouse for immigration. Joint bankruptcy filing are also allowed to help people in financial turmoil to avoid paying multiple filing fees, and instead allow couples to combine their incomes to pay off each other’s creditors.

“This case is about equality, regardless of gender or sexual orientation, for two people who filed for protection” from creditors, the U.S. Bankruptcy Court in Los Angeles said Monday.

“In this court’s judgment, no legally married couple should be entitled to fewer bankruptcy rights than any other legally married couple.”

“Denying such benefits to a legally married same-sex couple serves no purpose in a bankruptcy case.” The court stated, also noting that the same sex couple’s creditors have not objected to their joint bankruptcy filing.”

“Creditors in this case, as in other cases, simply hope to be paid what they are owed,” the court said. “Beyond that, no creditor’s notion of morality concerning a same-sex marriage … has any valid bearing on the creditor’s rights in this case.”

Robert Pfister is the lawyer of the Los Angeles same sex couple challenging the 1996 law. Pfister’s clients, Gene Balas and Carlos Morales, were married in August 2008 just three months after the California Supreme Court ruled that gays and lesbians had a right to wed in the state. It was also less than three months before voters overturned that ruling by passing Proposition 8.

Balas and Morales filed for bankruptcy in February. The couple cited medical bills, illness, and periods of unemployment since Balas was laid off in 2009 from his $200,000-a-year job in the financial industry as the reasons behind their bankruptcy filing. Pfister said that their Chapter 13 bankruptcy filing was intended to establish a five-year repayment plan, but the federal bankruptcy trustee said the joint application violated the 1996 law.

The bankruptcy court’s ruling was signed by 20 of the court’s 24 judges, with no dissent. Bankruptcy cases are usually heard by a single judge. “I think it sends a very strong message.” Pfister said and added that he’d never heard of a ruling signed by that many jurists. If you are facing bankruptcy, our bankruptcy attorneys can help. At McFarlin LLP we offer free consultations to prospective bankruptcy clients.