Church, school eye bankruptcy mediation

ANDERSON, Ind. (Herald Bulletin) - Anderson Christian School and the Lindberg Road Church of Christ have asked for mediation in a complicated bankruptcy case stemming from a failed financing plan, where church leaders took out life insurance policies on 11 of their older members.

The life insurance policies were to back a $2.5 million line of credit, taken out in 2007 from the Fort Wayne-based Star Financial Bank, to expand its child care center and remodel the school, 24-Hour News 8 news partner The Herald Bulletin reports .

"It was a great plan except for one thing - it didn't work," said the church's attorney, David Kleiman, in an August court filing. "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."

On Tuesday, the school asked the court to order mediation between itself; the church, 2625 Lindberg Road; and the bank.

The church agreed to the mediation, saying it was "interested in fully and finally resolving the borrower-lender relationship with the bank," according to its response, filed Wednesday in U.S. Bankruptcy Court for the Southern District of Indiana.

The bank opposed the mediation, because "settlement has been fully explored."

U.S. Bankruptcy Judge Frank Otte delayed making a decision after hearing both sides' testimony in November, saying he didn't know if he had the power to allow a change to the conditions of the loan, or to allow the church to pay back only a portion of its outstanding debt.

"I usually know what I'm going to do pretty quick, whether right or wrong," Otte said during the November hearing, before adding that he was taking the matter under advisement. "I'm not sure what I'm going to do."