What the Supreme Court Decision Overturning DOMA in United States v. Windsor Means for Bankruptcy Law and Joint Bankruptcy

In a 5-to-4 decision in United States v. Windsor, the U.S. Supreme Court ruled today that married same-sex couples are now entitled to receive federal spousal benefits in the states in which they are legally married. The landmark ruling overturns a portion of the Defense of Marriage Act (DOMA) from 1996 which denies federal benefits to legally married same-sex couples despite the recognition of those marriages under state law.

What this historic decision practically means is that same-sex couples in the 14 states/districts where same-sex marriage is legal can now enjoy the numerous benefits bestowed by federal law on married couples, including a lower tax rate on their married-filing-joint federal income tax returns, spousal tax exclusions on transfers of funds and assets, other estate tax benefits, social security survivor benefits, federal health care protections extended to married couples such as COBRA coverage and Medicare’s spousal benefits, spouse-based sponsorship for U.S. citizenship, the ability to file joint bankruptcy petitions, and many more.

When it comes to bankruptcy, all married couples in these 14 states (including Minnesota) can now file joint bankruptcy petitions at least in a state which recognizes their legal marriage. The benefit to filing a joint bankruptcy case rather than two individual bankruptcies is that a same-sex couple will not needlessly pay two filing fees (currently $306 per Chapter 7 case) nor will they have to pay two attorney fees (usually charged at a flat rate). Instead, a joint bankruptcy filing requires the payment of just one filing fee and typically only a small upcharge on the attorney fee, thereby saving the couple up to $2,000 or more on their joint Chapter 7 bankruptcy case. In addition to savings, a joint bankruptcy filing can also utilize the protections of two sets of exemptions rather than jut one, potentially protecting a  greater amount of valuable assets from possible liquidation in Chapter 7.

As of the date of this posting, the 14 states that recognize same-sex marriage include California, Connecticut, Delaware, District of Columbia, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington. California was welcomed to this list thanks to the Supreme Court’s same-day decision knocking down California’s Proposition 8 in a separate ruling.

The question is still unanswered as to whether same-sex couples legally married in one state can file a joint bankruptcy petition if they now reside in one of the other states which do not recognize same-sex marriage.

Lynn Wartchow is graduate of Carleton College and a bankruptcy attorney located in Edina, Minnesota representing all couples in Chapter 7 and Chapter 13 consumer bankruptcy proceedings throughout the Twin Cities area of Minneapolis and St. Paul, Minnesota.

 

Converting from Chapter 7 to Chapter 13: What’s Involved and Why Would You Convert?

Conversion to Chapter 13 from Chapter 7 isn’t a death sentence for your bankruptcy case (see Chapter 13: Not Always a Gloomy Diagnosis in Bankruptcy). Perhaps a Chapter 7 was filed underestimating your income and you didn’t actually qualify for Chapter 7 for this reason. Or perhaps you realize after filing your Chapter 7 that you have mortgage arrears that you wish to repay in order to save your home from foreclosure, which is something that you cannot do in Chapter 7. Or perhaps you discover after already filing Chapter 7 that you have non-exempt assets which you would rather ‘pay to keep’ in Chapter 13 rather than turn over to the Chapter 7 trustee for immediate liquidation. Also, conversion can arise when the Office of the United States Trustee brings a motion to dismiss your Chapter 7 case for abuse, usually citing that you did not qualify for Chapter 7 from the beginning. While converting to Chapter 13 is neither an everyday experience nor a great risk for the average debtor, it can arise and ideally your attorney has already explained the differences between Chapter 13 and Chapter 7.

What can you expect if you convert to Chapter 7 from Chapter 13:

  • File and sign new petition forms and amended schedules required for the verified conversion.
  • Formulate a Chapter 13 plan with your attorney. The plan will propose a monthly Chapter 13 payment to commence about one month after the conversion is filed and continue for three to five years. From this payment, mortgage arrears and priority tax claims can be paid off over three to five years, vehicle loans may be crammed down to the value of the vehicle rather than the pre-petition balance of the loan, and other terms can be written into your plan that are more versatile than can be achieved in Chapter 7.
  • Attendance at the Chapter 13 Meeting of Creditors. You will need to attend a Meeting of Creditors with the Chapter 13 trustee even if you have already attended a Chapter 7 Meeting of Creditors.
  • Additional attorney fees. Chapter 13 almost always costs more than Chapter 7, in large part due to the attorney work necessary to formulate a Chapter 13 plan and for the fact that your bankruptcy attorney continues to represent you throughout the entire three to five-year Chapter 13 plan (versus the few months in which a Chapter 7 bankruptcy is usually completed). Many times, these fees can be paid in large part ‘through the plan’, which means the attorney fees are paid over time through the monthly plan payments you make to the Chapter 13 trustee.

Unless you recognize a change in circumstances where you voluntarily wish to convert your case, your attorney will also apprise you of any event arising in your Chapter 7 case which may require conversion to Chapter 13.

For more information on how to convert your case from Chapter 7 to Chapter 13, contact Wartchow Law Office for a free bankruptcy consultation. Located in Edina, Minnesota, Wartchow Law represents clients in all forms of bankruptcy throughout the Minneapolis and St. Paul metro area of Minnesota.