Gays, Lesbians and Bankruptcy in New York City

The purpose of this blog post is to provide information about bankruptcy to the gay and lesbian community in New York City that uniquely affects them.

As a result of the 2005 changes to the Bankruptcy Code, for gays and lesbians considering filing for personal bankruptcy there are certain things they will need to consider. In addition, there are certain provisions of the Bankruptcy Code that may affect the rights of gays and lesbians differently than heterosexuals.

First of all, for consumer debtors (i.e., debtors whose debts are primarily for personal, family or household debts and not for a business), the 2005 amendments to the Bankruptcy Code established means testing (see the Frequently Asked Questions (FAQs) of the Starr & Starr, PLLC website: What is the “means test” for chapter 7 and why is it important? ).

For married individuals who are not separated and maintaining separate households, if one of them files for bankruptcy and the other does not the income of the non-filing spouse is supposed to be taken into account on the means test. However, the non-filing spouse is also allowed to take certain deductions on the means test to account for his or her separate expenses that are not for the support of the debtor or dependents of the debtor.

The Bankruptcy Code uses the term “married” but does not contain a federal definition of marriage. If a lesbian or gay couple were married in a jurisdiction where such marriage is legally recognized, such marriage should be entitled to recognition for purposes of federal bankruptcy law. However, it is not entirely clear how a NY bankruptcy court or appellate court (i.e., U.S. District Court or the Second Circuit Court of Appeals) would rule on this issue as it is not entirely settled at the moment.

If a lesbian or gay couple marries and one of them files for bankruptcy and the other does not, this means that the income of the non-filing spouse will need to be taken into account for purposes of the means test to determine eligibility for chapter 7 on the chapter 7 means test, or to determine the duration of a chapter 13 plan and amount of plan payments on the chapter 13 means test.

Even if not married, if one of the members of a gay or lesbian couple files for bankruptcy and the other does not, to the extent that the non-filing spouse regularly pays for certain common expenses, such as rent, utilities, etc., that should also need to be taken into account on the debtor’s personal budget.

Please feel free to contact Starr & Starr, PLLC at 888-867-8165 with any questions that you may have, or to schedule a free initial consultation.