Filing for Bankruptcy and Untying the Knot? Not Without Strings Attached

(Excerpt) Substantive consolidation is an equitable remedy used sparingly by bankruptcy courts to consolidate the bankruptcy estates of two debtors. Although it originated in the corporate context, consolidating the estates of two corporate entities or a corporate entity and an individual debtor, its application has extended to consumer bankruptcy. The consolidation of the bankruptcy estates of two debtor spouses has been addressed and recognized by the Second, Third, Fourth, Sixth, Eighth, and Eleventh Circuit Courts. Part I of this article briefly examines the authority legitimizing substantive consolidation. Part II analyzes the remedy’s corporate origins and the differing approaches taken by the circuit courts. Part III explores its expansion into the consumer context, particularly debtor spouses, and the Eighth Circuit’s decision in Boellner v. Dowden, which was the first time a circuit court affirmed an order substantively consolidating the separate estates of debtor spouses. This article concludes that debtors in the process of ending their marital relationship should take concrete steps to legalize that dissolution prior to filing for bankruptcy if they want to reduce the risk that their bankruptcy estates will be substantively consolidated