The Herald Bulletin

Morning Update

Local News

October 30, 2012

Church’s failed financial plan in legal battle with bank

Life insurance policies intended to cover loan

ANDERSON, Ind. — An Anderson church, which has filed for bankruptcy, is in a legal battle with a bank over resolving a failed financing plan where church leaders took out life insurance policies on 11 of their older members to cover construction and renovation projects.

The insurance policies were intended to cover a loan used by the Lindberg Road Church of Christ, 2625 Lindberg Road, to expand its child care center and remodel its affiliated Anderson Christian School.

But the plan fell through when there was no market to sell the life insurance policies and “the insureds continued to live,” according to court documents filed in U.S. Bankruptcy Court for the Southern District of Indiana.

The church filed for bankruptcy in January and the ensuing legal actions have become a “nightmare” for the church, said David Kleiman, an attorney with an Indianapolis firm representing the church.

Initially, the church sought Chapter 11 bankruptcy, which would protect it from foreclosure while it paid back a $2.5 million line of credit for the expansion and remodeling. The closing on the loan was in early 2007.

This month, the Fort Wayne-based Star Financial Bank objected to that Chapter 11 plan, saying the bank would receive more from a Chapter 7 declaration, which would liquidate the church’s real property assets, according to the filing.

A debtor can only file for Chapter 11 if the creditor would make less from a Chapter 7 filing, said Kleiman.

The expansion and remodeling was funded through life insurance policies involving some of the church’s senior members. The church bought $4.35 million in life insurance policies on 11 members. The death benefits on those policies — or their sale on a secondary market — would back the line of credit. The bank promoted the plan as its “Life Legacy” program.

In an August court filing, Kleiman noted, “It was a great plan except for one thing — it didn’t work! There was no market for the life insurance policies and the insureds continued to live. Nevertheless, even after the bank was aware of the problems with the Life Legacy program, it continued to loan the church money it could never repay.”

Members volunteered for plan

According to church elder Sherrill Allred, the church initially envisioned a smaller, member-funded project, but expanded that when the bank and Carmel-based Total Financial Group proposed the insurance plan.

“All the members (who took out policies) volunteered for this,” said Allred, 62 of Anderson.

Former church member Johnny Lollar, 81, of Anderson, is listed in the filings as having one of the largest death benefits — $700,000 through Penn Mutual Life Insurance. He said he volunteered for the policy, but hadn’t heard anything about it in years.

“I’m surprised,” Lollar said. “I didn’t know any of this (bankruptcy) was going on.”

The church tried to sell the policies through Total Financial Group in 2009, but was told there was no market for them. That left the church with nearly $2 million in debt to the bank, which was due in February 2010.

Kleiman said Lindberg Road tried unsuccessfully to settle the matter before filing for Chapter 11 bankruptcy earlier this year.

“We do feel there’s a degree of responsibility that the church has,” Allred said. “This has been not only a financially difficult process, but a morally difficult one for the church.”

Kleiman proposed a plan where the church would pay $507,000 plus interest to the bank over the next 25 years. The $1.5 million remainder would come through the life insurance policies’ proceeds.

Allred said the church hasn’t decided how it would fund the cash repayment because there are “still too many factors” at play.

Those uncertainties have affected church attendance and school enrollment, said Tom Snell, administrator of Anderson Christian School and former elder. He estimated church attendance has dropped to the mid-200s, about a 100-worshiper decrease from last year. School enrollment is down about 10 percent from last year, he said.

Both the church and school are operating during bankruptcy proceedings.

“People just aren’t sure what’s coming,” Snell said.

The bank filed an objection to the church’s reorganization plan Oct. 26, asserting Star Financial could receive more under a Chapter 7 bankruptcy, which would involve a “liquidation of the (church’s) real property,” according to the filing. The church responded saying its proposed repayment plan was fair.

The bank’s attorneys could not be reached for comment Tuesday.

Kleiman said a hearing is set for Nov. 27 to decide a course of action.

“Hopefully then the nightmare will come to an end,” he said.

Find Baylee Pulliam on Facebook and @BayleeNPulliam on Twitter, or call 648-4250.

1
Text Only
Local News
  • NWS - HB0728 - Colts Camp - 006 Armed Forces Day at Colts camp pairs Girl Scout cookies with veterans

    Pair Girl Scouts and their world-famous cookies with Armed Forces Day at Indianapolis Colts training camp, and you've got a winning combination. Operation: Cookie Drop, as it's called, is a program where customers buy boxes of cookies for delivery to active and retired military throughout central Indiana.

    July 27, 2014 1 Photo

  • NWS - HB0728 - World War 1 local Nurse hoped for lasting peace after World War I Ella Hand’s grave marker in Elwood is simple and unadorned. A stone block, it marks that she was born Sept. 20, 1870, and died Oct. 28, 1937.

    July 28, 2014 1 Photo

  • SPT - HB0728 - Gordon art Rain doesn't dampen Brickyard fans' spirits

    Despite threatening skies and chances of rain, fans at the Brickyard 400 were not disheartened by the forecast Sunday. Fans expected the race to be completed and were anticipating an exciting race for the Sprint Cup event at the Indianapolis Motor Speedway.

    July 27, 2014 1 Photo

  • What's Where: July 28 Local meetings and activities are scheduled Monday, July 28.

    July 28, 2014

  • Markleville Jamboree begins July 31 Is your baby the prettiest? Does your pet do amazing tricks? Do you bake, sew, craft? Do you like tractors? If any of this sounds like you, you're invited to join in the contests at the Markleville Jamboree.

    July 28, 2014

  • Arrest Log: July 27 Arrests made by Madison County law enforcement on Friday and Saturday based on Madison County Jail records.

    July 27, 2014

  • SPT - HB0727 - Harvick art Harvick dominates qualifying SPEEDWAY — Kevin Harvick dominated the first ever knock-out qualifying for the Brickyard 400, easily capturing the pole position for Sunday’s race.Harvick in the Stewart-Haas Racing Chevrolet posted the quickest time in all three sessions and was the

    July 27, 2014 1 Photo

  • NWS - HB0727 - Markleville honor Another golden hour: Couple gives thanks to rescuers On Saturday, the Smalls attended the Adams Markleville fire department’s annual ice cream social to personally thank those they say are responsible for saving Steve’s life.

    July 26, 2014 1 Photo

  • NWS - HB0727 - Teacher Blessing - 13 Church's donation a blessing for teachers Thirty teachers attended the second annual Blessings for Teachers on Saturday at Anderson First Baptist Church.

    July 26, 2014 2 Photos

  • nws - hb0725 - colts - jc - 4.jpg Colts camp's impact: pricey or priceless?

    Football fever is here and the city is flooded with fans eager to catch a glimpse of a favorite player. But officials say they are unclear what kind of economic impact the Indianapolis Colts training camp has on the area.

    July 26, 2014 1 Photo

July Staff Photos


Buy and browse more photos from The Herald Bulletin

More Resources from The Herald Bulletin
Auto Industry Book
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Facebook