In re Knippen
| Decision Date | 12 December 2006 |
| Docket Number | Bankruptcy No. 05 B 16847.,Adversary No. 06 A 00588. |
| Citation | 355 B.R. 710 |
| Parties | In re: Kerry Robert KNIPPEN, Debtor. David E. Grochocinski, Trustee, Plaintiff, v. Jodi Knippen; Dale Cutsinger; and Sandra Lou Cutsinger, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
William T. Neary, United States Trustee, Chicago.
Joseph R. Voiland, Esq., Yorkville. Sarah L. Poeppel, Esq., Naperville.
This matter comes before the Court on the complaint filed by David E. Grochocinski, the Chapter 7 trustee (the "Trustee") of the bankruptcy estate of Kerry Robert Knippen (the "Debtor") against Jodi Knippen ("Jodi"), Dale Cutsinger ("Dale"), and Sandra Lou Cutsinger ("Sandra") (collectively the "Defendants") to avoid an alleged fraudulent transfer pursuant to 11 U.S.C. §§ 548(a) and 550(a) and 740 ILL. COMP. STAT. 160/5, 160/6, and 160/9(b) of the Illinois Uniform Fraudulent Transfer Act, and on the motion for directed judgment findings made at trial by the Defendants pursuant to Federal Rule of Bankruptcy Procedure 7052 which incorporates Federal Rule of Civil Procedure 52(c). For the reasons set forth herein, the Court grants judgment in favor of the Trustee and against Jodi under Counts I, III, and IV of the complaint and finds that the Debtor's transfer of real property located in Aurora, Illinois to Jodi was a constructively fraudulent conveyance under 11 U.S.C. § 548(a)(1)(B), 740 ILL. COMP. STAT. 160/9(b), 740 ILL. COMP. STAT. 160/5(a)(2) and 160/6(a) and (b). Thus, the Trustee may avoid the transfer of that property by the Debtor to Jodi pursuant to 11 U.S.C. § 544(b)(1). Under 11 U.S.C. § 550(a)(1), the Trustee may recover from Jodi, for the benefit of the Debtor's estate, the sum of $20,000.00, which represents the value of the Debtor's one-half equity interest in that property, less the value of the property he received in the marital dissolution proceeding. In addition, the Court grants judgment in favor of the Trustee and against Dale and Sandra pursuant to Counts II and V of the complaint. The Trustee may recover under 11 U.S.C. § 550(a)(2) and 740 ILL. COMP. STAT. 160/9(b) from Dale and Sandra, as subsequent transferees of Jodi, for the benefit of the Debtor's estate, the sum of $20,000.00, which consists of the value of the Debtor's one-half equity interest in the Aurora, Illinois property, less the value of the property he received in the martial dissolution proceeding. The Trustee may recover only one satisfaction from the Defendants pursuant to 11 U.S.C. § 550(d). Finally, the Court denies the Defendants' motion for judgment on directed findings under Bankruptcy Rule 7052.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (H), and (O).
The Debtor married Jodi on September 10, 1995. Thereafter, in January of 2002, Jodi filed a petition for dissolution of marriage in the Circuit Court for the Sixteenth Judicial Circuit, Kane County, Illinois. The couple engaged in a lengthy and protracted battle over the custody of their two young minor children. Both Jodi and the Debtor were represented by attorneys during those proceedings and each incurred legal fees in excess of $30,000.00 and $40,000.00, respectively. After several years of continued litigation, they reached an agreement with respect to the custody of their children. Subsequently, the remaining matters regarding the division of their property and debts were quickly resolved. On September 30, 2004, a judgment for dissolution of marriage was entered by the state court. (Defs.Ex. No. 1.) The judgment incorporated a Marital Settlement Agreement (the "Settlement Agreement") that the Debtor and Jodi entered into and the state court approved. (Defs. Ex. No. 2 & Trustee Ex. No. 3.)
Pursuant to the Settlement Agreement, Jodi and the Debtor divided and received certain assets and agreed to pay certain liabilities. (Id. Art. VII.) In particular, Jodi received the marital home located at 1050 Rosefield Lane, Aurora, Illinois (the "Aurora Property") which she and the Debtor owned as joint tenants. (Id.) This transfer is the main focus of the instant litigation. Undisputedly, the Aurora Property was the largest asset of Jodi and the Debtor. Under the Settlement Agreement, Jodi was responsible for the $132,775.90 first mortgage on the Aurora Property as well as the junior home equity loan in the amount of $18,946.82. (Id.) Moreover, Jodi retained ownership of the Mazda 626 automobile and a checking account at NLSB. (Id.) She was also liable for her unpaid attorney's fees. (Id. Art. VI.)1
The Debtor, on the other hand, retained ownership of a Suzuki all-terrain vehicle, a 1977 Chevrolet Camaro (Defs.Ex. Nos.5ac), two checking accounts at Oxford Bank, his interest in Hunter Tech, Inc., all tools in his possession, and any 2003 federal and/or state income tax refunds. (Defs. Ex. No. 2 & Trustee Ex. No. 3, Art. VII.) In addition, the Debtor received three other vehicles: a 1991 Toyota Four-Runner (Defs.Ex. No. 6); a 1991 Dodge Ram 250 van; and a GMC van. (Defs. Ex. No. 2 & Trustee Ex. No. 3, Art. VII.) These items of property were not assigned specific values in the Settlement Agreement. (Id.)
The Debtor was responsible for the credit card debts owed to Shell, Hawthorne Visa, and any other cards held solely in his name. (Id.) Jodi was responsible for the credit card debts owed to J.C. Penney, Discover Card, and Bank One Visa. (Id.) Further, she was responsible for the unpaid promissory notes to Dale and Sandra. (Id.) The amounts of these debts were not specified in the Settlement Agreement. (Id.) Finally, both Jodi and the Debtor waived any right to maintenance. (Id. Art. IV.) Jodi and the Debtor testified before the state court that they believed that the Settlement Agreement fairly and equitably divided the marital estate. (Defs. Ex. No. 3 & Trustee Ex. No. 4, 8:1-4; 17:9-11.)
In accordance with the terms of the Settlement Agreement, on September 30, 2004, the Debtor executed a quit claim deed that conveyed his interest in the Aurora Property to Jodi. (Trustee Ex. No. 5.) The quit claim deed was not recorded until October 28, 2004, in DuPage County, Illinois. (Id.) Subsequently, on November 10, 2004, Jodi executed a warranty deed that conveyed her interest in the Aurora Property to her uncle by marriage, Dale, and aunt, Sandra. (Defs. Ex. No. 12 & Trustee Ex. No. 6.) The deed was recorded in DuPage County, Illinois on that same date. (Id.) In exchange for the transfer of the Aurora Property, subject to the attorney's lien and the liens of the first and second mortgage holders, Jodi received $200,000.00 from Dale and Sandra. Dale testified that he agreed to purchase the Aurora Property from Jodi because he knew she was having difficulty making the monthly payments and he wanted her and the children to continue living in the house. Dale has charged Jodi below market rental of $875.00 per month, and made a verbal agreement with her to resell the Aurora Property to her if and when she can afford to buy it. At all relevant times, Jodi and the children have continued to reside in the Property.
Dale further testified that in his opinion, the Aurora Property was worth $215,000.00. Dale stated that the $200,000.00 sale price was arrived at after considering Jodi's unpaid $8,200.00 attorney's judgment lien as well as a potential real estate broker's commission. An appraisal was made on the Aurora Property in June of 2006. (Defs. Ex. No. 10 & Trustee Ex. No. 7.) That appraisal established a fair market value for the Aurora Property, as of November 2004, of $208,000.00. (Id.)
The $200,000.00 that Jodi received from Dale and Sandra was deposited into a trust account at Krentz & Krentz, P.C. (Trustee Ex. No. 12 & Defs. Ex. Nos. 11 & 14.) Those funds were used to pay the first mortgage and junior home equity loan on the Aurora property, plus monthly rent of $875.00 to Dale and Sandra, credit card debts, and some of the unpaid attorney's fees owed by Jodi from the marital dissolution proceeding. (Id.)
On April 28, 2005, approximately seven months after he transferred his interest in the Aurora Property to Jodi, the Debtor filed a voluntary Chapter 7 bankruptcy petition. (Trustee Ex. No. 1.) Thereafter, the Trustee was appointed. The Debtor's Schedules and Statement of Financial Affairs reveal that he had no real property. (Id. Schedule A.) Further, the Debtor listed personal property in the total amount of $8,453.33. (Id. Schedule B & Defs. Ex. No. 25.) Among some of that personal property was a checking account at Oxford Bank which the Debtor valued at $500.00, household goods and furnishings valued at $500.00, clothing valued at $300.00, a 1989 GMC van valued at $50.00, a 1991 Dodge Ram 250 van valued at $2,500.00, a 1977 Camaro, jointly owned with his father, valued at $900.00, tools worth $750.00, and eighty-five percent of his gross monthly income of $2,833.33. (Id.) Finally, the Debtor listed his one-hundred percent ownership of Hunter Tech, Inc. as having a zero value. (Id.) The Debtor did not list any secured debt. (Trustee Ex. No. 1, Schedule D.) The Debtor listed unsecured debt in the amount of $69,046.52. (Trustee Ex. No. 1, Schedule F & Defs. Ex. No. 25.) The Debtor's schedule of current income at the time of his bankruptcy filing shows that his monthly income totaled $1,638.50. (Trustee Ex. No. 1, ...
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