Although closely related debtors other than spouses cannot file a joint petition, the court can order joint administration of their cases.
Filing bankruptcy jointly is different than the joint administration of cases: only spouses can file jointly.
But joint administration keeps estates separate so that each filing party has their own assets and liabilities. However, the estates are under the administration of the same trustee which cuts down the administrative costs and allows more convenient disposition of the cases. Joint administration is therefore an administrative device to save costs and allow for more efficient handling of separate estates.
On the other hand, consolidation is another way to save costs. Sometimes, the court will consolidate the cases for procedural reasons such as where two sets of creditors have both filed involuntary petitions against the same debtor. Yet, the court also has the power to order the substantive consolidation of a case against separate debtors. Substantive consolidation is not provided for in the bankruptcy code but is a judicially created device based on the courts equitable discretion. For instance, where spouses or other closely related debtors, such as an individual and his or her corporation/subsidiaries are in bankruptcy, the court can combine their estates so that assets are pooled and creditors of each become creditors in the consolidate estate.
However, substantive consolidation is different from joint administration because it combines the two separate estates into a single bankruptcy estate. As a result this may prejudice creditors of the debtor with the higher asset-to-debt ratio. Thus, substantive consolidation is not routinely permitted unless the party seeking consolidation can prove the overall equities favor consolidation. This may occur where it is apparent that the affairs of the debtors are so entangled that it is very difficult to separate their assets and liabilities.
In addition, there is a connection between substantive consolidation and the equitable remedy of piercing the corporate veil, in which a court disregards the separate identity of the corporate entity and its shareholders. Although the doctrines are conceptually related, they do have distinct differences.
If you are considering joint administration of a bankruptcy case or want to consolidate with someone closely related to you, contact Eric Lanigan in Winter Park, Florida. At Lanigan and Lanigan, we want to help you untangle your financial affairs and cut the costs of bankruptcy so that the process is as simple as possible.
