Louisville family law attorney Louis Winner is joined by bankruptcy attorney Charity Bird. Today’s conversation covers the intersection of divorce and bankruptcy. Louis begins the episode discussing the impact of the COVID pandemic on their firms and related issues.
Dealing with COVID
When the pandemic first hit the Louisville area, it caused a brief slow down as the courts worked to figure out how best to cope with the risks of COVID. Court dates and hearings were cancelled. The general public obviously focused on this pandemic, rather than filing for divorce. There seemed to be a standstill.
After roughly 2 weeks, the activity bounced back and at least for Louis’ practice, surged. The court system was still trying to figure out the safest way to navigate through the pandemic, so while people could file divorce petitions, nothing was really happening.
Charity experienced a similar impact in her bankruptcy practice. The bankruptcy courts completely shut down. As the initial shock wore off and the process began to move, the anticipated spike in bankruptcy filings was delayed until recently.
Different Court Systems
Louis practices in primarily in state court, while Charity’s bankruptcy cases are handled in federal court. Federal court is extremely regimented. She typically practices in front of the same 5 judges. Louis, on the other hand, travels all over the state (and in other states). Each venue has a different judge or judges. There are 10 different family court judges in Jefferson County, alone.
Bankruptcy court does not involve a jury. There may be specific issues, which the judge will send to a different court (federal district court or to state court). Kentucky’s family court system also does not involve a jury.
The Court System Evolved Due to COVID
Family law mediations began to migrate to remote environment, such as Zoom video conferencing, rather than remaining in-person. Attorneys quickly became accustomed to using Zoom on a seemingly daily basis. The bankruptcy system has also adopted this video conferencing platform.
Charity is not a fan of this type of communication for her practice. Most of it has to do with the challenges that come with it. People talk over one another. Issues with on-hold music and/or mute can be extremely disruptive, if not chaotic.
Louis mentions a Court of Appeals opinion involving the use of Zoom. It involved various issues including communication issues. The Court vacated the trial court’s opinion. It stressed the need for exceptions to accommodate in-person hearings.
The courts are beginning to return to in-person mediations and other activities. Masks are becoming a requirement for some family court divisions. The hope is that the overall management is more effective.
Louis details how he’s managing the Zoom-based hearings, but can still present a challenge for some attorneys. Many attorneys are hoping that the system continues to utilize Zoom, based on productivity and convenience factors. The jury is out, so to speak.
Charity comments that there’s a push to return to live, in-person hearings in bankruptcy court. Some of it comes down to the collegiality of the in-person environment.
Both attorneys comment on how the in-person format fosters more deals getting done, while everyone is there, even outside of the courtroom.
Chapter 11 Bankruptcy
This is usually for corporations and LLCs, although high net worth individuals can also qualify. A Chapter 11 bankruptcy is a reorganization of the debts, not a liquidation. The entity will project out how the creditors will be paid over 5 years.
Chapter 7 Bankruptcy
This is a complete liquidation used by both businesses and individuals. Generally, the debts are discharged without repayment. If there are assets worth keeping, the individual or business may be prevented from filing a Chapter 7 bankruptcy. A home and possibly your car can be exempted from the liquidation, as long as you agree to pay the mortgage and auto loan.
Chapter 13 Bankruptcy
Is similar to a Chapter 11, but for individuals. A payment plan will be worked out and payments will be made over 5 years. This enables the individual to retain the assets.
Divorce and Bankruptcy
Assume a couple has filed for divorce, and one spouse decides to file for bankruptcy, even though the divorce isn’t finalized. What happens?
Charity explains that this will have little impact on the divorce litigation. If one or both of the litigants were in collections litigation, it would stop the collections, but the family law case would proceed. The impact it does have is that once the bankruptcy discharges the debts from the person who filed, the other party could get left with all of the financial obligations, including the joint obligations.
An Automatic Stay
This can be put into place to prevent collection from the debtor. Louis explains it can put a hold on the divorce case, pending the resolution of the bankruptcy case.
Domestic support obligations (DSOs) are exempted. Child support, alimony and even a property settlement can be considered non-dischargeable in a bankruptcy.
Assume the divorce is complete and one party has agreed to pay the other party’s credit card debt, even though the credit cards are not in the first party’s name. If the correct language related to an indemnification and hold-harmless provision is included in the divorce settlement agreement, this is a non-dischargeable debt.
Louis and Charity agree that there’s a risk is both spouse do not file for bankruptcy. Charity has advised clients to file a joint bankruptcy case, even if they are going through a divorce, if that is an issue or factor. The debts could be discharged and then the residual assets could be divided.
Where Do You File a Bankruptcy?
This answer refers to the physical location. Typically, a bankruptcy is filed where the business is primarily located and/or where the individual lives or intends to live. Exemptions are an important consideration if 2 states are involved.
Attorney Fees and Bankruptcy
In family court a judge may require a spouse to pay the other spouse’s attorney fees or a portion thereof. Attorneys can place liens on property, such as a home, to protect their fees.
Would You Like More Information?
To contact Charity Bird, her phone number is (502) 540-8285. Her firm (Kaplan, Johnson, Abate & Bird, LLP) is located in downtown Louisville.
For more information about Louis Winner and his family law practice, visit www.LouisvilleFamilyLaw.com.
The content provided in this podcast episode is for informational purposes only. It does not constitute the establishment of an attorney-client relationship. Louis’ primary office is located in Louisville, KY. This is an advertisement.