A small group of local businesses and government agencies stand to lose out on millions of dollars as the process of paying out jailed landlord David Kircher’s assets unfolds.
Kircher was caught pumping raw sewage from Ypsilanti Township's Eastern Highlands apartment complex into the Huron River in 2004 and started serving a five-year prison sentence in 2008.
Kircher filed for chapter 7 bankruptcy in June and a list of claims by creditors against him totaled $4.9 million.
His 24 properties were put under the control of bankruptcy trustee Doug Ellman, who was charged with selling them. Of those, 13 sold and brought $2.1 million into the bankruptcy estate. The remaining properties were sold at a Washtenaw County tax foreclosure auction.
Of the $2.1 million, $950,000 had to be paid to Barnes and Barnes for costs of receivership and managing the Eastern Highlands apartment complex.
David Kircher was caught pumping raw sewage from the Eastern Highlands apartment complex into the Huron River.
Tom Perkins | For AnnArbor.com
That leaves just more than $1.1 million to be distributed among the creditors. Some of the claims - like approximately $318,000 claimed by the city of Ypsilanti for property taxes - have already been paid because back taxes were built into the sale price of Kircher’s properties.
“We’ve been able to take the assets and convert them to cash,” Ellman said. “There are certain claims that have been made. Some of those have been paid. As for the rest, we have to figure out who gets what.”
The amount of money each creditor is paid is determined by a complex U.S. bankruptcy code. The highest priority is given to Ellman and others who incurred costs managing the bankruptcy estate. Secured and priority claims are given the next level of priority. Those usually include banks or mortgage lenders.
The remainder of the funds are distributed among those with unsecured claims.
That means Barnes and Barnes, which has an unsecured claim of $2.2 million for the remaining cost of managing Eastern Highlands, will likely only receive 30 to 40 cents on the dollar after the secured and priority claims are paid. At best, the Ypsilanti-based developer and property management company stands to lose $1.4 million.
Barnes and Barnes did not respond to requests for interviews from AnnArbor.com.
The State of Michigan Department of Environmental Quality had a $1.1 million claim against Kircher stemming from a fine for pumping the raw sewage into the Huron River. But the bankruptcy estate found the state wasn’t allowed to be paid those funds under U.S. bankruptcy code and the state settled for $5,000.
Ypsilanti Township claimed Kircher owed $69,000 in attorney fees incurred in the case following the incident, but recently settled for 25,000, which will be considered a secured claim.
Like Barnes and Barnes, the State of Michigan Department of Treasury will receive 30 to 40 cents on the dollar for its unsecured claim of $136,000 for the cost of housing Kircher in prison for the past five years.
The Internal Revenue Service stands to lose out on around $10,000 of approximately $26,000 Kircher owes it. That $10,000 does not have to be paid per bankruptcy code.
Kircher’s former attorney, Douglas Spicer, has claimed Kircher owes him approximately $262,000, but Ellman said the bankruptcy estate disagrees Spicer has a legitimate claim and the dispute will go to court.
The list of claims also includes around 10 others small claims from a variety of businesses.
Kircher is scheduled to be released from prison on Aug. 17.
Tom Perkins is a freelance reporter. Contact the AnnArbor.com news desk at news@annarbor.com.