Love and Bankruptcy

The day after the Justice Department announced in early 2011 that it would no longer defend the 1996 Defense of Marriage Act (DOMA) in court because the Obama administration considered it discriminatory, Gene Balas and Carlos Morales, a longtime Los Angeles couple, celebrated the traditional way: They submitted a petition for joint bankruptcy filing.

“Their financial problems were no different than anybody else’s,” says David Stern, a bankruptcy and civil litigator at Klee, Tuchin, Bogdanoff & Stern in LA. “They were not gay problems. They were not straight problems. They were just problems.”

Balas and Morales had been legally married in 2008, but, because of DOMA, the federal government didn’t consider them spouses. Only spouses can file for bankruptcy jointly.

“They’d been trying to file a bankruptcy petition for nearly a year and they couldn’t quite figure out how to do it, given the fact that they were not supposed to be filing jointly,” says Robert Pfister, Stern’s partner on the case. “It was this procedural morass as to what to do.”

“Their lives, their finances, everything is completely and inextricably intertwined,” Stern adds.

When the local U.S. Trustee moved to dismiss their 2011 joint-filing petition on the grounds that “the debtors appear to be two males,” the Klee Tuchin team contacted the couple’s consumer attorney to offer their services pro bono.

“We said we’d love to help out on the constitutional issue that’s going to be framed by this case,” says Stern. “To my mind, it is a question of individual dignity and civil rights.”

“These are people who are married under the laws of their home state and they’re told by the federal government that they have to lie and say that they’re single?” says Pfister. “I actually find that offensive.”

At a June 2011 hearing, Pfister countered the U.S. Trustee’s motion, arguing that DOMA was unconstitutional.

Pfister invoked the rational-basis test. “Every law that Congress passes has to have a rational basis,” he says. “The Defense of Marriage Act fails because there’s no rational governmental reason that same-sex couples who are legally married under state law should be treated any differently than opposite-sex couples who are legally married under state law. … There’s nothing inherent about opposite-sex couples or same-sex couples having anything to do with bankruptcy. It has no effect at all on the bankruptcy process.”

Judge Thomas Donovan of U.S. Bankruptcy Court for the Central District of California, the nation’s largest bankruptcy court, agreed and ruled that DOMA was unconstitutional. In an unusual show of support, 19 of his colleagues on the bench signed the ruling.

Those signatures, says Stern, mean that “when similar cases come up in [the judges’] courtroom, they have already considered the argument that the U.S. Trustee made and considered the arguments against [DOMA],” he says.

“And they’ll rule it unconstitutional,” Pfister adds.

Initially, the Justice Department appealed but then reversed course. It declared it would no longer challenge bankruptcy petitions filed by legally married gay couples—“anywhere in the country,” Stern says.

“There are only a small handful of challenges that have arisen in this context on behalf of lawfully married couples, that have challenged the federal government’s decision not to recognize their marriages,” says Pfister. “We’re one of the first four or five.”

“It’s a step in the right direction,” says Stern. “But there are a lot of other steps that need to be taken before full marriage equality exists in the United States.”