It’s a fact that Texas does not recognize gay marriage. It’s also a fact that there are countless gay couples in Texas. I have no idea how many of those couples are struggling financially, but I know our office has represented a fair amount of gay couples. The purpose of this article is to remove any mystery related to gay couples in Texas and their bankruptcy rights.
Married Couples and Bankruptcy
We often get asked from one spouse in a married couple if both spouses have to file for bankruptcy. It’s a common myth (read the other bankruptcy myths here) that both spouses in a married couple are required to file even if only one spouse wants to file. The truth is that only one spouse is required to file bankruptcy. When we quote a fee, that fee is usually the same whether one or both spouses file. It usually makes sense for both spouses to file when they are jointly and severally liable for a significant portion of the debt. These issues of “who files” and joint and several liability directly relate to a gay couple’s bankruptcy rights.
Gay Couples and Household Income
Even though only one spouse in a Texas-recognized marriage is required to file a bankruptcy, the law requires that we analyze a married couple’s bankruptcy rights based on the entire household income, not just the income of the spouse that is filing. This can sometimes negatively impact the analysis we provide to people. For example, if it only makes sense for one spouse to file, because he or she owes most of the debt, we still have to consider the non-filing spouse’s income. If the person who hopes to file earns nothing, but the non-filing spouse earns $100,000 per year, we have to base our analysis on the family income of $100,000 per year. There are arguable exceptions to this but that’s the general rule.
This household income analysis is not the same for a gay couple. Imagine the scenario in the previous paragraph, where one spouse owes most of the debt and receives no income. Because Texas does not recognize a gay marriage, we are NOT required to include the non-filing partner’s income. We are only required to consider the non-filing partner’s regular contributions to household expenses. This can have a huge impact on our analysis and it’s usually quite beneficial to our client to only include regular contributions to household expenses as income.
Gay Couples and Joint and Several Liability
Gay couples are no different than heterosexual couples when it comes to incurring debt. They have credit cards and houses together, buy cars together, etc. We’ve seen countless situations where it makes sense for the couple to file because of joint and several liability. What does it mean to be jointly and severally liable? It means that each person who has agreed to pay the debt (e.g. they signed the credit card agreement or promissory note) is responsible for 100% of the debt. If any responsible party dies or successfully completes a bankruptcy, the remaining signers are still responsible for 100% of the debt.
How does this impact a gay couple? Since they are not legally married does it mean they cannot file bankruptcy? Not at all. If each partner is jointly and severally liable for most of the family debt, such that it would make sense for them to file bankruptcy as a couple if it was allowed, they can each file their own individual bankruptcy and get relief.
How Does It Work?
Helping a gay couple understand their bankruptcy rights is really no different than helping a heterosexual couple. We still need to know everything we possibly can about the family finances in terms of income, expenses, creditors, property, etc. We have to take an extra step of signing something called a “conflicts waiver”. If there is joint and several liability on a debt and a lawyer meets with both responsible partners, the potential exists that only one partner will file bankruptcy. Only the partner who filed the bankruptcy will be absolved of the liability. The partner who did not file would now be solely responsible and the argument could be made that the partner who filed bankruptcy harmed the non-filing partner. When this potential for harm exists, a lawyer is required to explain the possibility and it’s best to put it in writing and have each potential client sign an acknowledgement–that’s the conflicts waiver. This is almost never a big deal as most gay couples, like most heterosexual couples, are in alignment as to what to do about their debt issues.
Once the conflicts waiver is reviewed and signed, everything else is the same. If the couple determines that bankruptcy is in their best interest, they would be required to file two separate bankruptcies. At our firm, we usually lower the fee for each partner’s case to make the total fees more manageable. We still have to do the same amount of labor in each case because they are totally separate.
Summing up
All of the above boils down to a couple of simple ideas:
1. Gay couples can file bankruptcy, they just can’t file one bankruptcy together as a couple
2. If one partner in the gay couple is not liable for much of the debt, it probably does not make sense for that partner to file bankruptcy
3. If both partners are jointly and severally liable for most of the debt, it would likely make sense for each partner to file his or her own separate bankruptcy.
Adam Schachter is a board certified bankruptcy lawyer serving Houston Texas and surrounding areas since 1999. For a free, confidential, no obligation consultation to discuss your personal situation please call (713) 961-9477 for immediate assistance or use the form on our website.
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