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In re Killian

United States District Court, C.D. Illinois, Springfield Division

September 30, 2013

In Re: Patrick Dennis Killian, Debtor.
v.
JOHN H. GERMERAAD, Trustee, A. CLAY COX, Trustee, and NANCY J. GARGULA, U.S. Trustee, Appellees PATRICK DENNIS KILLIAN, Appellant,

Decided: September 27, 2013.

Page 258

[Copyrighted Material Omitted]

Page 259

For Patrick D Killian, Appellant: Brian D Pondenis, LEAD ATTORNEY, OSTLING & ASSOCIATES, Bloomington, IL.

John H Germeraad, Trustee, Appellee, Pro se, Petersburg, IL.

For A Clay Cox, Trustee, Appellee: A Clay Cox, LEAD ATTORNEY, HAYES HAMMER MILES COX & GINZKEY, Bloomington, IL.

For Nancy J Gargula, sued as Office of Nancy J Gargula, U.S. Trustee, Appellee: Timothy E Ruppel, LEAD ATTORNEY, U.S. TRUSTEE, Peoria, IL.

OPINION

Page 260

Richard Mills, United States District Judge.

On Appeal from the United States Bankruptcy Court for the Central District of Illinois.

I. INTRODUCTION

The Appellant, Dennis Killian, claims that the Court has jurisdiction, pursuant to 28 U.S.C. § 158(a), of this direct appeal from the bankruptcy court. The Appellee, the Chapter 13 Trustee, objects to jurisdiction based on equitable and pragmatic mootness. If the appeal is not found to be moot, then the Appellee acknowledges the Court has jurisdiction under § 158(a).

The Appellant is a debtor who filed a Chapter 13 bankruptcy case in the United States District Court, Springfield Division, on January 14, 2011. This appeal raises several issues. The first issue is whether the bankruptcy court erred, as a matter of law or as clearly factual error, in involuntarily converting the Appellant's Chapter 13 case to a Chapter 7 case. The second issue is whether the bankruptcy court erred as a matter of law and committed clear factual error in disallowing the Appellant's amended claim of exemption.

The Appellee contends that the appeal is moot for equitable and pragmatic reasons because of certain actions taken in compliance with the bankruptcy court's order converting the case.

For the reasons that follow, the Court finds that the appeal is not moot and the bankruptcy court committed no error in involuntarily converting the case or in disallowing the Appellant's amended claim of exemption. Therefore, the decision of United States Bankruptcy Judge Mary P. Gorman is affirmed.

II. FACTUAL BACKGROUND

(A)

After the Chapter 13 bankruptcy petition was filed on January 14, 2011, the § 341 meeting occurred on March 11, 2011 and the Trustee filed his confirmation report on March 14, 2011. At the § 341 meeting, a creditor questioned the Appellant about a transfer of land to a family trust. Although the land was sold within two years of the bankruptcy filing, the Appellant did not disclose the transfer on the Statement of Financial Affairs.

According to testimony at a hearing before the bankruptcy court on April 3, 2012, the Appellant contacted an attorney regarding significant credit card debt that he and his wife had incurred. At the time, the Appellant wished to avoid filing for bankruptcy protection and hoped to negotiate the settlement of various debts. The Appellant employed the law firm of Ostling and Associates to conduct negotiations with various credit card companies to which he was in debt.

According to the transcript of an April 24, 2012 hearing before the bankruptcy court, certain creditors requested a Rule 2004 examination relating to the undisclosed land transfer. The bankruptcy

Page 261

court found that Appellant had " improperly" resisted multiple attempts to arrange a Rule 2004 examination and was ordered to appear. At the Rule 2004 examination, the Appellant admitted to selling land to his siblings' trust in April 2009. He testified that the sale proceeds ($60,000) were transferred into his personal account at Busey Bank. When asked what became of that money, the Appellant testified that he paid medical bills, attorney's fees, and a credit card through Ostling and Associates. He stated that he also used some of the proceeds for mortgage payments. The Appellant specifically denied transferring any of his assets to his wife prior to the filing. Although the transcript of the Rule 2004 examination was never presented to the bankruptcy court, that court was aware of the above statements through references in pleadings and at hearings.

After the Rule 2004 examination, a creditor sought an accounting of the Appellant's trust account with Ostling and Associates. Ostling and Associates filed the trust account records once ordered to do so by the bankruptcy court. According to the records and testimony from the Appellant's counsel, the Appellant used $25,000 from the land sale to establish the trust account in 2009. Counsel stated that the purpose of depositing those funds was to negotiate, reduce and ultimately pay off several of the Appellant's credit card debts. At some point in 2010, a credit card debt of about $23,000 was settled for approximately $9,000, which was paid from the trust account. According to counsel, the other debts were unable to be resolved or settled. On January 10, 2011, four days before the petition date, $14,869 remained in the trust account.

The Appellee claims Ostling and Associates transferred substantial sums out of the trust account within three days of the bankruptcy filing. Appellant's counsel took $1,274 in attorney's fees for two transactions on January 11, 2011. The Appellant's wife then received approximately $11,000 from the trust on January 12, 2011. As of the filing date, $2,500 remained in the account.

According to counsel, the Appellant's wife routinely handled the household finances, paying all, or at least most, of the household bills. Therefore, the funds were released to her so she could pay one remaining credit card debt. After the Appellant filed for bankruptcy protection, the Appellant's wife paid $10,309.62 to the Appellant's unsecured pre-petition creditor Citi American Express. According to the schedules, the Appellant owed $0.00 to this creditor on the petition date. Before the trust accounting was filed, the Appellee and the Appellant's creditors did not know that the Appellant transferred substantial sums from that account just days before the petition was filed or that money was in a trust account on the filing date because these transfers were not disclosed on the Statement of Financial Affairs.

The Appellant states that when the Chapter 13 bankruptcy case was filed on January 14, 2011, he only filed the minimum documents that were required. He later timely filed the remainder of the required bankruptcy schedules and a ...


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