55 F.3d 231 (7th Cir. 1995), 94-1965, Matter of Knight

Docket Nº:94-1965.
Citation:55 F.3d 231
Party Name:In the Matter of Frank E. KNIGHT, Debtor-Appellant.
Case Date:May 03, 1995
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 231

55 F.3d 231 (7th Cir. 1995)

In the Matter of Frank E. KNIGHT, Debtor-Appellant.

No. 94-1965.

United States Court of Appeals, Seventh Circuit

May 3, 1995

Argued Nov. 8, 1994.

Page 232

Arend J. Abel, Daniel B. Dovenbarger, Matthew R. Gutwein, Martha J. Arvin (argued), Office of Atty. Gen., Indianapolis, IN, for State of Ind., State Bd. Accounts.

Gary L. Hostetler, Laura A. Briggs (argued), Hostetler & Kowalik, Indianapolis, IN, for Frank E. Knight.

Before COFFEY and RIPPLE, Circuit Judges, and SKINNER, District Judge. [*]

RIPPLE, Circuit Judge.

The case before us concerns the eligibility of a person filing a bankruptcy petition for relief under chapter 13 of the Bankruptcy Code. An individual may qualify as a chapter 13 debtor only if he has regular income, his noncontingent and liquidated unsecured debts do not exceed $100,000, and his noncontingent and liquidated secured debts do not exceed $350,000. See 11 U.S.C. Sec. 109(e). In this case, the bankruptcy court concluded that Frank E. Knight was not entitled to chapter 13 relief because he had more than $100,000 in unsecured debt. Mr. Knight appeals the district court's affirmance of the bankruptcy court's dismissal of his chapter 13 petition. Our review confirms that Mr. Knight's unsecured debts exceed the statutory limitation under chapter 13. We therefore affirm the district court's decision. 1



  1. Facts

    Mr. Knight was the Town Court Judge of Mooresville, Indiana; he resigned on October 15, 1990. On November 7, 1991, Mr. Knight filed a voluntary chapter 13 petition. The State of Indiana, State Board of Accounts ("SBA"), timely filed an unsecured claim for $108,949.50. The SBA's claim was based on its audit of the Mooresville Town Court operations for the period from January 1, 1987 to October 15, 1990. In the report of the audit results, the SBA explained that its examiners had discovered 915 instances in which Town Court Judge Knight had failed to report traffic convictions to the Indiana Bureau of Motor Vehicles ("BMV"). For each reporting failure, the SBA report stated, the Judge incurred a liability of $100.00, based upon Indiana Code Sec. 9-4-7-9(c) and (e). 2 The SBA examiners also discovered that Mr. Knight had misappropriated, diverted or failed to account properly for $17,449.50. It

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    itemized its total claim against Mr. Knight as follows:

    After discussing the contents of the audit report with Mr. Knight's attorney on July 29, 1991, the SBA certified the audit report to the Office of the Indiana Attorney General on September 20, 1991, charging Mr. Knight with a total liability to the SBA of $108,949.50. The certified audit report noted that the State Police had confiscated the court records on August 21, 1990 (less than two months prior to Judge Knight's resignation) and that criminal charges of theft and official misconduct had been filed against Mr. Knight in the Morgan County Superior Court on May 9, 1991. Id. at 8. On June 7, 1991, Mr. Knight had pleaded guilty to one count of theft, a Class D felony, and one count of official misconduct, a Class A misdemeanor. According to the audit report, under the terms of the plea agreement, Mr. Knight was required to pay $3,000 in restitution to the State of Indiana, and the prosecutor agreed not to file "any additional charges arising out of this same fact situation on which these charges are based."

    On October 29, 1991, the Attorney General, on behalf of the State of Indiana, sent Mr. Knight a demand letter requiring that he pay his liability to the State. On November 7, 1991, Mr. Knight sought chapter 13 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Indiana.

    After filing its proof of claim in Mr. Knight's bankruptcy proceedings, the State filed a motion to dismiss his bankruptcy petition or to convert it to a chapter 7, on the ground that his unsecured debt exceeded the allowable amount under 11 U.S.C. Sec. 109(e). Mr. Knight conceded then, as he does before us on appeal, that the $17,449.50 amount attributable to excessive fines, alternative sentencing and contributions was based on claims in existence and enforceable at the time he filed his bankruptcy petition. However, he contested, and continues to contest, the SBA's $91,500 "penalty debt" for failure to report the 915 convictions. He submits that the claim is contingent and unliquidated because no action was brought against him by the Attorney General to recover the penalty, and therefore no civil judgment has established a duty on his part to pay that debt.

  2. Prior Judicial Determinations

    By order of October 16, 1992, the bankruptcy court dismissed Mr. Knight's chapter 13 petition. The court held that the $91,500 penalty debt arising from the unreported traffic violations constituted a noncontingent and liquidated debt on the date of the bankruptcy filing that, when added to his other unsecured debts, would make Mr. Knight ineligible for chapter 13 relief.

    Although the Debtor's liability for the Penalty Debt was not determined pre-petition by a civil lawsuit, all of the events needed to establish or give rise to liability did occur pre-petition. The Penalty Debt was noncontingent on the date of the bankruptcy filing, because the Audit Report states that the Debtor failed to report 915 traffic offenses, and...

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