The highly visible political issue of same-sex marriage has made a big impact on the seemingly unrelated matter of who can file for bankruptcy protection under Chapter 13 or Chapter 7. In fact, it may be even more true to say that bankruptcy has had an unexpected impact on the issue of same-sex marriage.

That is because a problem has been before the bankruptcy courts in growing numbers. As more same-sex couples have been able to legally marry under state law in an increasing number of states, those same-sex spouses are experiencing the same financial difficulties that are becoming common in the distressed economy. However, when legally married same-sex couples have filed joint petitions for bankruptcy protection, their petitions have been dismissed.

The reason for the dismissals is the involvement in the bankruptcy process of the U.S. Trustee. The Trustee is a division of the Justice Department. They have been moving for dismissal of joint bankruptcy petitions by same-sex spouses.

The rationale for the Trustee's opposition to the same-sex joint petitions has been the 1996 Defense of Marriage Act, or DOMA, which bars federal recognition of same-sex marriages. But the Obama administration has been increasingly uncomfortable with the DOMA. In February, the White House said that the administration would no longer defend the constitutionality of the DOMA.

In June, a bankruptcy judge ruled that the DOMA was unconstitutional, and he would not allow that law to prevent a same-sex couple from filing a joint petition for bankruptcy. A total of 25 bankruptcy judges signed the opinion.

Fort Lauderdale bankruptcy attorneys noted that at first the U.S. Trustee appealed the decision, as they always had in the past. Recently, though, the Trustee moved to withdraw its appeal. A Justice Department spokesperson announced that the Trustee would no longer seek dismissal of joint petitions filed by legally married same-sex couples.

The case in question took place on the West Coast, but since bankruptcy is federal law, and the U.S. Trustee operates across the country, the new policy will be in force in all jurisdictions. Legally married same-sex couples should be able to file joint bankruptcy petitions henceforth.

Source: Thomson Reuters News & Insight "Justice Department shifts policy on same-sex bankruptcies" 7/8/2011