Nevada Famruptcy 101: What the Family Lawyer Can’t Afford Not to Know
By Brian E. Blackham and Laura A. Deeter

The casualties of the "Great Recession" are everywhere. Throughout Southern Nevada, abandoned homes lie in disrepair and vacant storefronts line our major streets. From our televisions, the phrase "Now handling bankruptcies" abounds. If you are fortunate enough to have a job, you certainly know people who are not so lucky. With unemployment rising and consumer debts mounting, a staggering number of Southern Nevadans are seeking relief through bankruptcy. According to the United States Bankruptcy Court, District of Nevada Web site, 22,604 bankruptcies were filed in Southern Nevada from last year through November. This is a 43 percent increase from 2008. Given this unprecedented surge in bankruptcy filings, it is crucial for the family law practitioner to be aware of the impact that debt resolution and bankruptcy may have on divorce proceedings.

Federal law vs. State law
As bankruptcy is entirely a creature of federal law, it generally preempts state law under the Supremacy Clause of the United States Constitution. U.S. Const. art. VI, cl. 2; Nanopierce Techs., Inc. v. Depository Trust and Clearing Corp., 123 Nev. 362, 168 P.3d 73, 79 (2007) (acknowledging federal preemption). However, "the whole subject of domestic relations . . . belong to the States . . .and not to the United States." Popvici v. Alger, 280 U.S. 379, 383 (1930). Thus, the tension between state and federal law in domestic matters is likely to increase as consumer bankruptcies continue to rise.

Chapter 7 vs. Chapter 13
The two most common types of consumer bankruptcies a family lawyer is likely to encounter are Chapter 7 liquidation and Chapter 13 reorganization. A Chapter 7 is a short and fast liquidation process that typically lasts about 90 days, after which a debtor’s obligations are discharged, or completely eliminated. Some debts cannot be discharged in a Chapter 7, such as domestic support obligations, property settlement obligations (see discussion below), and, almost always, federally-backed student loans. In contrast, a Chapter 13 bankruptcy proceeding typically places the debtor in a repayment plan for a period of three to five years, in which all or a portion of the debtor’s debts are repaid. At the end of the repayment period, the debtor’s remaining obligations are fully discharged. Once a debtor receives a discharge, attempts by creditors to enforce or collect on discharged debts are barred by the discharge injunction. 11 U.S.C. §524(a).

Domestic support obligations vs. Property settlement obligations
The basic rule of thumb is that child support and alimony cannot be discharged. Both of these obligations will survive any bankruptcy proceeding. Prior to the sweeping overhaul of the Bankruptcy Code in 2005 (BAPCPA), property settlement obligations resulting from a divorce could be fully discharged in a Chapter 7. However, BAPCPA eliminated the ability for debtors to discharge property settlement debts in a Chapter 7, although they may still be discharged in a Chapter 13. Specifically, 11 U.S.C. §523(a)(5) provides that domestic support obligations are not dischargeable. A domestic support obligation is defined in 11 U.S.C. §101, and although the statutory definition is comprehensive and contains some nuances, the term typically refers to child support or alimony (including arrears on either).

The dischargeability of property settlement debts is addressed in 11 U.S.C. §523(a)(15), which provides that a debt to a "spouse, former spouse, or child of the debtor [other than domestic support obligations] incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of the court of record . . ." is not dischargeable in a Chapter 7.

In contrast, property settlement debts may be included in a Chapter 13 plan. This is clear from the negative implication in 11 U.S.C. §1328(a), which specifically excludes domestic support obligations and certain other debts from a Chapter 13 discharge, but conspicuously does not identify property settlement obligations as being among the nondischargeable debts.

To illustrate, suppose that pursuant to a divorce decree, Spouse A is ordered to (1) pay Spouse B the sum of $20,000.00 as an equalization of assets; and (2) pay Spouse B $500.00 per month in child support. After the divorce, Spouse A files for Chapter 13 bankruptcy relief, makes all of his plan payments for five years, and receives a discharge. Spouse A is no longer obligated to pay Spouse B the $20,000.00, although Spouse B may have received pro rata payments on the debt (as would other creditors) as part of the Chapter 13 plan. However, in order to receive her pro rata share, Spouse B must timely file a proof of claim and participate as necessary in the bankruptcy case. Failure to do so will likely result in a full discharge of Spouse A’s property settlement obligation without Spouse B receiving a dime. On the other hand, if Spouse A had filed for Chapter 7 relief, he would still be obligated to pay the $20,000.00. No matter what type of bankruptcy relief Spouse A seeks, the current child support obligation and any arrears cannot be discharged.

Treatment of community debts and timing
In divorces, community debts are treated similarly to community property, in that they are usually divided equally, or close to equally. Wolf v. Wolf, 112 Nev. 1355, 1361, 929 P.2d 916, 920 (1996). In reaching its decision, the Wolf Court cited to NRS 125.150(1)(b), which directs the Court to make, to the extent practicable, an equal division of community property, unless there are compelling reasons for an unequal division. Thus, the Wolf Court appears to direct the district courts to treat community debts in the same manner as community property. That is, the courts must either divide community debts equally, or set forth written findings showing compelling reasons for an unequal division.

Nevertheless, a bankruptcy may complicate the division of community debts, if the timing happens to be right. In Siragusa v. Siragusa, 108 Nev. 987, 843 P.2d 807 (1992), the Supreme Court held that a former husband’s post-divorce Chapter 7 discharge of his $1,300,000 property settlement debt to his former wife constituted changed circumstances to justify an upward modification of the former husband’s alimony obligation. Id. at 996, 843 P.2d at 813. Siragusa is often cited as a blanket preclusion of a spouse from ever discharging his or her community obligations as to the other spouse. But is it? In fact, the Siragusa decision was handed down 13 years before BAPCPA. Today, the facts in Siragusa could not occur, as the husband would not be able to discharge his property settlement obligation to his wife in a Chapter 7. The argument could therefore be made that the BAPCPA amendments rendered the primary holding in Siragusa moot.

Perhaps more importantly, neither Siragusa, nor the Bankruptcy Code expressly precludes the discharge of one spouse’s share of the community debts prior to the entry of a divorce decree or property settlement agreement. It is usually preferable for spouses contemplating divorce to file bankruptcy jointly to discharge all community debts before dissolving their marriage. However, if one of the spouses refuses to file, there appears to be no reason why the other spouse could not file bankruptcy alone—even in the middle of a divorce action—obtain a discharge of his or her share of the community debt, and consequently stick the non-filing spouse with all of the community debts. While the family court may attempt to equalize such a case by imposing alimony on the debtor spouse or unequally dividing the community assets, such actions are not permitted by the narrow Siragusa holding, and may be considered a violation of the discharge injunction.

Obviously, the areas of overlap between bankruptcy and family law are far more extensive and complex than the space here would allow. If you have a client with significant debts or an opposing party who is considering bankruptcy, you may want to consult bankruptcy counsel to ensure that your client’s property interests are protected.

Brian E. Blackham is an associate attorney with Goldsmith & Guymon, P.C., practicing primarily in domestic relations law.

Laura A. Deeter is an associate attorney with Goldsmith & Guymon, P.C., practicing in the areas of bankruptcy, guardianship, family law, estate planning and probate.

Update from Family Court (2009 in Review)
By Hon. Gloria Sanchez

Sir Winston Churchill once said: "We shall not fail or falter; we shall not weaken or tire . . . Give us the tools and we will finish the job." When I first read this inspiring quote, I thought immediately about our highly interactive family court bench and bar, and how much we have accomplished together in the year 2009!

Active bench/bar meetings
Our meetings are extremely well-attended by both the judiciary and family law lawyers. We now meet every six weeks due to popular demand. Our agendas are enormous and of late, tend to focus on recent controversial Supreme Court decisions. We engage in frank discussions, spirited debate, and strive for solutions, such as our recent formation of a committee geared towards standardization of policies and procedures amongst the eighteen family court departments.

New leadership
We were fortunate to have one of our own, Family Court Judge Art Ritchie, unanimously elected to serve as our new chief judge. Steve Grierson became our new CEO, and Dr. Leonard Cash (Cash), our new family court administrator. I am blessed to be serving as your presiding judge once again, particularly given the gifted leadership we have in place. Six new family court judges and several new hearing masters recently joined our ranks, bringing our total to 18 family court judges and 12 full-time hearing masters/commissioners. Later this year, we are looking forward to adding two more family court departments!

Innovative technology
Together we weathered the conversion to "Odyssey" and the eventual phase-out of "Blackstone." Millions of documents were scanned as we boldly went "paperless" with our court files. In furtherance of our paperless initiative, effective February 1, 2010, all domestic cases were required to be e-filed. This policy creates a more efficient court, saves taxpayer dollars, and uses technology to manage growth without increasing personnel. At the request of the Bar, we also instituted the ability to download court hearings onto USB sticks—a more expedient, convenient, and less expensive alternative to the archaic tapes and discs previously used. We also commenced operation of the "Attorney’s Corner" which allows counsel to remotely access all information pertaining to their cases online. In addition, "q-matic" was recently installed at the Clerk’s office allowing counsel to select the service they need at a kiosk where they will receive a number and automatically have their names placed in a queue. Attorneys can then wait anywhere for their number to be called (rather than waiting in line), and are automatically given priority in the queue.

Annual marathon settlement conferences
In 2009, through the support of Chief Justice Hardesty and the Nevada Supreme Court, we held our first marathon settlement conference, and the results were staggering! Due to the collaborative efforts of the senior judges, family court judges, and our family law attorneys, 47 out of 71 cases were fully settled, with partial settlements achieved in 8 cases, for a global settlement rate of 77 percent! Litigants were well-served by an expeditious and economical resolution of their case; judges were able to devote their calendars to other emergencies and necessitous cases; and attorneys had a forum to "flesh-out" issues and resolve some difficult and highly contentious matters. A true "win-win-win" all around! As we go to press, we will be in the middle of our second annual family court marathon. Senior judges Terry Marren and Chuck Thompson will do their best to resolve approximately 100 cases.

New facilities
In these tough economical times, we were fortunate to have been able to construct four new courtrooms on our family court campus, primarily dedicated to juvenile abuse and neglect hearings. As a result of this expansion, every family court judge and hearing master now has a permanent courtroom assignment, and we actually have a courtroom to spare! We are also in the process of relocating the Child Support Hearing Masters to the two new courtrooms and chambers in the Greystone complex located on East Flamingo Road. It is anticipated that child support hearings will commence at the Greystone complex as of March 1, 2010, if not sooner. We have repaved and expanded the Family Court parking lot, increasing the number of spaces by approximately 10 percent and doubling the parking for those with disabilities. We have also added 22 more exterior security cameras to prevent vandalism and enhance personal safety.

New legislation
Family Law is no longer an area of law in which a general practitioner can occasionally "dabble." We have an ever evolving complex set of statutes and case law, and last year was no different, with a plethora of new family law emerging from the 2009 Legislative session. Statutory revisions ran the gamut of juvenile matters, mental health issues, guardianships, child abductions, wills and estates, child support, firearms, and the new domestic partnership bill.

It is an exciting and challenging time to be involved in family law matters. Our judicial bench has been invigorated by the addition of new colleagues who are fresh from the trenches and can share with us their wisdom and the benefit of their recent experiences in family law practice. Our family law bar is highly proactive, genuinely interested in improving the system, and tireless in their efforts to upgrade and enhance the practice, whether it be by way of preparing an amicus brief, service on a bench/bar committee, or substantial pro bono contributions to those desperately in need of counsel. Our pro per litigants are forever challenging us in terms of our caseloads as their numbers increase, as well as the complexity of their issues in need of resolution. In that regard, the Self-Help Center has been invaluable; through November 2009, they assisted 74,589 walk-in customers and handled 10,075 telephone calls!

The recent statistics released in the Nevada Supreme Court’s Annual Report of the Nevada judiciary reflect that family court cases comprised 49 percent of the statewide district court caseload, while juvenile cases totaled an additional 10 percent. Collectively, these cases touch everyone’s lives and are also some of the most highly volatile and emotional matters heard in court. While there is still much to accomplish and many challenges ahead of us, we can be very proud of our collaborative efforts and the progress we have made in family court. We must continue to improve our professionalism, collegiality, and delivery of services to the public. My hat is off to all of you who contribute in great measure each and every day in the trenches. Together we can accomplish anything! We have the tools and we will "finish the job!"

Presiding Judge Sanchez has been a Family Court Judge for 17 years. Prior to that, she served as a Domestic Relations Referee for 4 years and was in private practice. This is her second stint as presiding judge of the Family Division of the Eighth Judicial District Court.