Chicago, Illinois To Commence A Wrongful Death Action In Cook County Circuit Court

In 1994, Gary Mordhorst hired the law firm of Demos & Burke of Chicago, Illinois to commence a wrongful death action in Cook County Circuit Court. The wrongful death action sought to recover damages for Debra Mordhorst's death under the Illinois Wrongful Death Act, 740 ILCS 180 and other Illinois wrongful death statutes. The named plaintiff was Gary Mordhorst, individually and as special administrator of the Estate of Debra Mordhorst. The debtor first became aware of the wrongful death action to recover damages on account of his mother's death on June 4, 1999 when he received a letter from the Demos & Burke law firm. The letter advised that the wrongful death action had been settled for $1 million and proposed an equal division of the net proceeds between the debtor, his father and his sister.

After receiving the June 4, 1999 letter, the debtor advised his bankruptcy counsel, David Krekeler, of the wrongful death action. On June 23, 1999, during a conversation with Attorney Krekeler, the trustee first learned that the debtor was to receive proceeds from settlement of a wrongful death action. Attorney Krekeler told the trustee that he had advised the debtor that the settlement proceeds were property of the bankruptcy estate and must be disclosed to the court and the trustee of the wrongful death penalty. On June 29, 1999, Attorney Krekeler informed the trustee that he had been released from further employment by the debtor.

On June 29, 1999, the Cook County Circuit Court ordered distribution of the settlement proceeds to the next-of-kin, including the debtor. On July 6, 1999, the debtor received $86,341.65 in partial satisfaction of his share of the settlement. The trustee learned of the partial distribution on July 19, 1999, and contacted the debtor the next day. The debtor informed the trustee that he had received proceeds from the wrongful death action and had spent approximately $40,000 to acquire property for his towing business and refused to turnover the remaining proceeds to the trustee. On July 30, 1999, this court granted the trustee's motion to reopen the debtor's bankruptcy case. The debtor has spent virtually all of the proceeds he received on July 6, 1999. The remaining proceeds due the debtor were later paid to the trustee pending final resolution of the issues in this case.

The trustee argues that: (1) the debtor's right to recover damages in the wrongful death action was property of the estate under 11 U.S.C. §541(a), and therefore, the settlement proceeds in the wrongful death action are also property of the estate; (2) this court should order the debtor to turnover the settlement proceeds and the property he purchased with the proceeds pursuant to 11 U.S.C. §542(a); and (3) the debtor's discharge should be revoked pursuant to 11 U.S.C. §727(d)(2) because the debtor failed to report and deliver property of the bankruptcy estate to the trustee. The debtor contends that he had no property interest in the wrongful death action or the proceeds because he did not file a claim, and that his family's decision to allow him to share in the settlement proceeds was a gift. Further, the debtor argues that the proceeds held by the trustee should be paid to him.

I.  At the time of his bankruptcy, the debtor had the right to recover damages under the Illinois Wrongful Death Act for the death of his mother. The debtor, as next-of-kin of the decedent, is statutorily entitled to a share of the recovery. The debtor's argument, that he had no property interest because he did not file a wrongful death claim for the death of his mother, is without merit. While the debtor characterizes the payment of a portion of the settlement proceeds to him as a gift from his family, it was, as a matter of law, an entitlement that existed upon the death of his mother.

Illinois law governs what property interest the debtor had in the wrongful death claim. The Bankruptcy Code defines property of the estate as "all legal or equitable interests of the debtor as of the commencement of the case." 11 U.S.C. §541(a). In In the Matter of Williams, 197 B.R. 398, 402 (Bankr. M.D. Ga. 1996, J. Hershner), the court stated: