No. 01-80007, Adv. No. 01-8044United States Bankruptcy Court, C.D. Illinois.
September 6, 2002

THOMAS L. PERKINS, United States Bankruptcy Judge.

Before the Court is the Complaint filed by 1st FARM CREDIT SERVICES, PCA (“PCA”), to determine the dischargeability of the debts owed by the Debtors, Bruce Hugh Lock (“BRUCE”) and Cindy Lou Lock (“CINDY”) (collectively known as the “DEBTORS”). The matter was taken under advisement following trial.

BRUCE has been a farmer for all of his adult life. The DEBTORS farmed approximately 1, 900 acres, growing soybeans and corn and raising livestock. CINDY helped out on the farm while raising their two sons, ages seventeen and nineteen. For many years, the DEBTORS obtained financing for their operations from PCA. Each year, one or both of the DEBTORS would meet with Mr. Gary Akers (“AKERS”), a PCA loan officer with whom they regularly dealt, to review the operations and estimate their needs for the coming year. The loan proceeds would be disbursed to the DEBTORS and they would control the funds. The DEBTORS would deposit the proceeds from the sale of grain and livestock in their farm account at the Tompkins State Bank, pay their operating expenses and apply a portion of the proceeds to PCA’S notes. Prior to his marriage to CINDY, BRUCE purchased a twenty acre farm on a contract for deed from Frank Snapp (the”SNAPP FARM”). With the exception of the SNAPP FARM, PCA held a security interest in all of the DEBTORS’ assets, as well as a mortgage on their residence.

The DEBTORS struggled to pay their expenses throughout the year in 1999. At the end of that year, still intending to farm and in order to obtain financing for 2000, BRUCE prepared a statement of asset values, including grain, feed, livestock and government payments. In January, 2000, the DEBTORS met with AKERS. From the information submitted by the DEBTORS, AKERS prepared a balance sheet, dated January 25, 2000, which was submitted to PCA for consideration. At that time, the DEBTORS owed PCA $462,558.00. PCA declined to extend further credit to the DEBTORS, and their application to another financial institution was also unsuccessful. The DEBTORS made the decision to get out of farming and advised AKERS of their intention to sell the grain and the livestock on their own and to hold an auction of the farm machinery and equipment. AKERS agreed to the liquidation plan proposed by the DEBTORS and agreed to let the DEBTORS stay on the farm during that process.

Shortly thereafter, PCA turned over the DEBTORS’ loan account to Mark Troline (“TROLINE”), its workout specialist. After reviewing the balance sheet prepared by AKERS, TROLINE contacted the DEBTORS’ attorney, and was advised that more grain and cattle remained to be sold, in addition to the auction of the machinery. TROLINE did not inquire as to the amount or value of PCA’S collateral remaining at that time. With their attorney’s consent, TROLINE spoke directly with the DEBTORS. Though he tried to make it clear to the DEBTORS that the sale proceeds belonged to PCA and to no one else, his contact with the DEBTORS was limited. According to the DEBTORS, although they never expressly sought permission, PCA did not restrict them from using a portion of the sale proceeds for ongoing operating and living expenses.

Neither AKERS, TROLINE, nor any other PCA representative independently verified the asset information submitted by the DEBTORS. PCA made no farm visits and did not conduct its own inventory of the DEBTORS’ assets. Throughout January, 2000, and the first three weeks in February, 2000, BRUCE continued to deposit the proceeds from the sale of grain and cattle into the farm account, and to use the funds in the account to pay operating and living expenses, as well as to make certain payments to PCA. On February 23, 2000, the DEBTORS closed out the farm account and received a check for the remaining balance of $9,139.00. None of those proceeds were paid over to PCA. TROLINE attended the auction of the machinery which was held on March 10, 2000, and PCA received all of the net proceeds. After the auction, BRUCE advised PCA that he could not sell the remaining grain without his equipment, and Ken Lock was hired to haul the grain to the elevator. Those proceeds, in the amount of $37,917.00, were received by PCA. On March 14, 2000, BRUCE made the final payment due on the purchase of the SNAPP FARM in the amount of $6,717.60. CINDY testified that she played no active role in the liquidation of ICA’S collateral and that BRUCE took care of it on his own. Her testimony was not challenged by PCA.

After the liquidation was completed, BRUCE sold the SNAPP FARM and purchased a home in Avon, Illinois, in May, 2000.[1] The DEBTORS separated in July of that summer, and have since divorced. While the dissolution proceedings were pending, the DEBTORS filed a Chapter 7 petition on January 2, 2001. PCA brought this five.count adversary proceeding, seeking to have a portion of its debt determined to be nondischargeable under § 523(a)(6).[2] Each count of the complaint covers a different category of PCA’S collateral and alleges that the DEBTORS converted the collateral by failing to turn over some or all of the collateral, or its proceeds, to PCA. A trial was held on January 15, 2002, and the matter was taken under advisement.


Section 523(a)(6) provides that a discharge in bankruptcy does not discharge a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.”11 U.S.C. § 523(a)(6). The burden of proof is on the creditor, by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). A willful injury must be a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). In a case of conversion, a creditor must show that a debtor, when converting collateral, did so with the specific intent of depriving the creditor of its collateral or did so knowing, with substantial certainty, that the creditor would be harmed by the conversion. In re Kidd, 219 B.R. 278, 285 (Bankr.D.Mont. 1998). The proper question is not whether the debtor intended that the secured creditor would go unpaid, but, rather, whether the debtor intended to improperly use the creditor’s collateral or its proceeds for purposes other than the payment of the secured debt; if so, there is an intentional injury. In re Russell, 262 B.R. 449, 455 (Bankr.N.D.Ind. 2001).

“Malicious” means in conscious disregard of one’s duties or without just cause or excuse; it does not require ill will or a specific intent to do harm. Matter of Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994). A debtor’s actions are malicious where he sells property and uses the proceeds for purposes other than payment of the secured debt, knowing that the property sold is subject to the lender’s security interest and knowing that he had a contractual obligation to remit the proceeds to the secured creditor. Russell, 262 B.R. at 455. The appropriate measure of damages for a willful and malicious conversion under Section 523(a)(6) is the value of the property that the creditor could have realized upon repossession at the date of conversion. In re Cox, 243 B.R. 713, 720
(Bankr.N.D.Ill. 2000).

Before addressing the specific allegations of conversion, the Court will first address a general argument made by PCA. While acknowledging a prior course of dealing whereby the DEBTORS were permitted to pay operating and living expenses out of the proceeds from the sale of its collateral, PCA contends that the DEBTORS did not have permission to do so once they decided to cease farming and to liquidate all of PCA’S collateral. This withdrawal of permission was not communicated to the DEBTORS. Acknowledging that they never raised the issue with AKERS or TROLINE, the DEBTORS assumed they still had permission and admit continuing to use PCA’S proceeds to pay operating and living expenses during the liquidation process.

As pointed out by the DEBTORS, PCA could have instructed the DEBTORS to simply drop everything and leave the farm, but did not do so. Instead, PCA acquiesced in the DEBTORS’ proposal that they would deal with liquidating the collateral. During that time, the livestock had to be fed and cared for, and the equipment and machinery had to be operated and maintained. Since the DEBTORS were effectively working for the benefit of PCA at that point, they were entitled to pay for living expenses out of the proceeds, which was the only source of funds they had. By choosing to allow the DEBTORS to handle the liquidation of its collateral, PCA will not be heard to complain about the reasonable expenses associated with that decision.[3]

Under these circumstances, the Court holds that the DEBTORS were entitled to use PCA’S proceeds, during the liquidation process, to pay for reasonable farm operating expenses and reasonable family living expenses. See, Russell, 262 B.R. at 456 (a course of dealing where creditor has consented to or acquiesced in a disposition of its collateral for purpose other than debt payment, may justify or excuse such continued use.)

PCA’S conversion theory is simplistic. Based upon the asset values submitted by the DEBTORS in support of their application for a loan for the 2000 crop year, PCA has subtracted the payments it actually received, and claims the difference represents converted property. According to the statement of assets submitted to PCA in early January, 2001, admitted into evidence as Exhibit 1, BRUCE listed the following property:

Corn 25,000 bu. 50 head Bred Cows $800 per head
Corn under loan 23,000 bu. 19 open Breeding Heifers $600 per head
Beans Pioneer Seed 9,000 bu. 15 head Feed lot Steers Heifers
Beans 2,500 bu. 800 lbs-.80 per lb.
Beans under loan 3,000 bu. 12 head Feed lot Steers Heifers
500-.85 per lb
5 head Show Steers 750 lb.-.80 per lb.
3 head Bulls $1,500 per head

Silage 300 Ton $40 per ton New Farm $4,000
Oatlage 100 Ton $40 per ton
Hay 150 Ton $40 per ton

According to PCA, it received the following amounts (as shown on Exhibit 11) from the DEBTORS or from the liquidation of the DEBTORS’ property:

2000 2000
Jan. 25 Payment from DEBTORS $7,000 March 7 Brdg Beef Herd 16 head $10,528.06
Jan. 26 Payment from DEBTORS 4,000 March 7 Beef Herd-Mrkt34 head 18,283.22
Feb. 3 Payment from DEBTORS 39,000 TOTAL $28,811.28
Feb. 8 Payment from DEBTORS 2,058
April Proceeds from liquidation
TOTAL $89,975
2000 2000
March 14 Hay sold at auction $580.00 None

The DEBTORS absolutely deny the allegations of conversion. They testified that they fully liquidated PCA’S collateral and paid the proceeds to PCA, less ordinary operating and living expenses. PCA offered no direct evidence of conversion. It introduced no evidence of any hidden collateral, of any secret sales of collateral, or of any proceeds deposited into undisclosed accounts. PCA’S case rests almost entirely on the circumstantial inference that it asks the Court to draw: that because the proceeds it ultimately received from the sale of its collateral were less than the values shown on BRUCE’S December, 1999, inventory, with no acceptable explanation for the discrepancy by the DEBTORS, the difference can only be explained by conversion. The Court must test that inference against the evidence as to each separate category of collateral.

It is also worth noting that all of PCA’S eggs are in the Section 523(a)(6) basket. PCA did not make a loan in reliance on BRUCE’S asset list and is not asserting a false financial statement claim under Section 523(a)(2)(B). PCA is also not objecting to discharge based on concealment of property under Section 727(a)(2) or failure to explain loss of assets under Section 727(a)(5).


BRUCE testified that he prepared the list of assets submitted to PCA in mid-December, 1999. At that time, he had 104 head of livestock, including the three bulls. He estimated that twelve to fifteen died during the winter, due in part to the wet and muddy weather. The bank account and farm records show that on January 8, 2000, the DEBTORS sold 30 head for $15,871.44, and on January 19, 2000, they sold 14 heifers for $8,043.87. On March 1, 2000, the DEBTORS sold 24 head for $17,050.00, and on March 7, 2000, they sold an additional 50 head for $28,811.28. Those records also show that on January 8, the DEBTORS purchased 5 heifers at the Fairview Sale Barn for $2,385.00, on January 15, 2000, they purchased 11 heifers there for $5,444.08 and on January 21, the DEBTORS purchased 2 heifers at the Galesburg Sale Barn for $1,048.35. Tallying those numbers:

On hand Dec. 1999 104 Sold 118
Purchased +18 Died 12-15
TOTAL 122 130-133

Based on this reconciliation, there are no cattle unaccounted for. If anything, BRUCE’S estimate of deaths was too high. The records reflect that the 118 head were sold for an aggregate amount of $69,776.59. PCA claims it received payments of only $28,811.00 directly traceable to proceeds from the sale of cattle. The DEBTORS argue that PCA’S damages calculation (Exhibit 11) fails to take into account expenses associated with the cattle, such as feed, veterinary care, medicine, transportation to and from the sale barns, sale fees and other expenses.

During January, 2000, the DEBTORS were still intending to continue farming and both they and PCA were still operating according to their past course of dealing. As shown by the DEBTORS’ bank account records for January, 2000, (Exhibit 4), PCA made advances to the DEBTORS in the amount of $9,600.00 on January 5, 2000, $6,300.00 on January 13, 2000, and $5,000.00 (marked “last advance”) on January 18, 2000. Exhibit 4 also reflects payments from the DEBTORS to PCA of $10,000.00 on January 11, 2000, $7,000.00 on January 25, 2000, and $4,000.00 on January 26, 2000.

The DEBTORS’ bank account records for January, 2000, (Exhibit 4), show a deposit on January 10, 2000, of $15,871.44 representing proceeds from the sale of the 30 head sold on January 8, 2000. The DEBTORS’ deposit of the cattle sale proceeds into the farm account was consistent with the established course of dealing with PCA and does not amount to conversion. Exhibit 4 also reflects a deposit of $8,043.87 on January 19, 2000, representing the proceeds from sale of the 14 heifers sold on that day. This deposit was also prior to the liquidation plan and, for the same reasons, does not constitute conversion.

Based upon the records in evidence, the proceeds from the sale of the 44 head sold in January, 2000, were deposited into the farm account and are fully accounted for.[4] The sale of 50 head on March 7, generated $28,811.28, which PCA acknowledges receiving in early March, 2000. That leaves the $17,050.00 in proceeds from the sale of 24 head on March 1, 2000. As evidenced by Exhibits 6 and 7, those 24 head were sold at or to Highway Angus on March 1, 2000, for $17,050.00. Those funds were immediately used by the DEBTORS as part of a payment to Commodity Credit Corporation (“CCC”) of $21,010.00. The DEBTORS made two subsequent payments to CCC on April 6, 2000, totaling $45,479.58. The sum of the payments to CCC of $66,489.58 approximates the figure of $61,050.00 used by PCA on Exhibit 11. PCA acknowledges that the CCC interest in the grain securing its loans had priority over PCA’S lien. Accordingly, Exhibits 6 and 7 corroborate the DEBTORS’ contention that some of the cattle proceeds were used to pay off CCC’S prior grain lien, thereby working to PCA’S benefit to the same extent as if the proceeds had been paid directly to PCA.

The two sales of cattle in January, 2000, which preceded the liquidation plan and with the proceeds deposited in the DEBTORS’ farm account in accordance with the established course of dealing, do not amount to conversion. PCA received the proceeds of $28,811.28 from the March 7 sale and received full benefit of the proceeds from the March 1 sale of $17,050.00 by payment of the prior CCC grain lien The inference that the DEBTORS converted cattle or the proceeds from the sale of cattle is sufficiently rebutted by the evidence in the record. Based on the evidence, the Court concludes that PCA has failed to carry its burden to prove that the DEBTORS converted any cattle or the proceeds therefrom.


The DEBTORS’ bank and farm records show that they deposited proceeds from the sale of grain in the farm account on the following dates:

Date Amount
01/04/00 $1,646.52
01/10/00 corn 3,369.91
01/11/00 7,064.70
01/13/00 1,883.16
01/19/00 corn 3,944.00
01/20/00 corn 1,961.29
01/25/00 1,847.92
01/26/00 1,578.55
01/31/00 beans 2,580.90
01/31/00 seed beans 35,102.77
02/01/00 corn 1,865.69
02/04/00 corn 8,412.27
02/07/00 beans 2,855.14
TOTAL $74,112.82

These deposits are consistent with the prior course of dealing. The cash transaction report for March, 2000 (part of Exhibit 6), also shows two additional grain sales at or to Sours Grain Co. on March 1, 2000, yielding proceeds of $6,283.88. With one exception, PCA is not claiming that any specific payment made from the farm account, or from cash after the account was closed, was unreasonable or improper.[5]

On Exhibit 11, PCA calculates the value of allegedly converted grain, as follows:

Gross value of grain per 1-25-00 balance sheet $176,910
Less Commodity Credit loans (61,050)
Net value of grain 115,000
Less payment to Farm Credit 1-25-00 (7,000)
Less payment to Farm Credit 1-26-00 (4,000)
Less payment to Farm Credit 2-3-00 (39,000)
Less payment to Farm Credit 2-8-00 (2,058)
Less payment to Farm Credit 4-6-00 thru 4-19-00 (37,917)
Balance $25,025

PCA’S calculation, however, is not supported by the evidence. First, BRUCE testified that he prepared Exhibit 1 in mid-December, 1999. This testimony was uncontradicted. PCA relies upon the fact that Exhibit 1 is dated 1-25-00, but that date corresponds to the date that the loan request was submitted by AKERS to PCA. Based on the evidence in the record, the Court finds that Exhibit 1 was prepared by BRUCE in mid-December, 1999, and reflects the asset quantities on hand at that time.

Second, because it focused on the 1-25-00 date, PCA’S calculation does not credit a $10,000.00 payment made by the DEBTORS by check dated 1-11-00, written a day after the DEBTORS sold grain for $10,434.00. Based on the Court’s finding that the starting point for PCA’S loss calculation should be mid-December, 1999, the $10,000.00 payment should be properly credited for the DEBTORS’ benefit. PCA also failed to introduce into evidence any of the DEBTORS’ records for December, 1999. Accordingly, any sales of grain and/or payments to PCA made between the preparation of Exhibit 1 by BRUCE and the end of December, 1999, are not in the record, and the possibility of late December grain sales or payments was not excluded through testimony at trial.

Third, as indicated above, Exhibit 7 shows that the DEBTORS made three payments to CCC totaling $66,489.58. Accordingly, Exhibit 11 understates the deduction for the CCC loan payments by $5,440.00. Fourth, from mid-December until the cattle were sold, the DEBTORS continued to use some of the stored corn as feed. Exhibit 11 fails to reflect this. Fifth, Exhibit 11 also fails to reflect a deduction for expenses related to liquidation of the grain.

Finally, the amount of the grain shown on Exhibit 1 is not a hard figure. BRUCE simply estimated the number of bushels by observing the grain in storage, and guessing, based on his experience, how much grain was on hand. He testified that his estimate could have been off by as much as twenty percent (20%). Given that the purpose of Exhibit 1 was to support a loan request, it is more likely than not that BRUCE overestimated the amount of grain on hand. Because PCA failed to take its own inventory and permitted the liquidation to be conducted by the DEBTORS, it had no evidence to present as proof of any hard number of missing bushels of grain. PCA presented no evidence of hidden grain, secret sales of grain, or transfers of grain proceeds to undisclosed accounts.

There are simply too many evidentiary holes that PCA failed to plug to enable the Court to conclude that the DEBTORS willfully and maliciously converted grain. In light of the foregoing factors, and based on the evidence in the record, the Court holds that PCA has failed to prove that the DEBTORS converted grain or proceeds from grain.


On Exhibit 11, PCA calculates its loss from alleged conversion of feed, as follows:

Gross value of feed per 1-25-00 balance sheet $22,000
Less hay sold at auction 3-14-00 (580)
Less estimate of feed usage from 1-25-00 to date
(Cattle sold on 3-1-00 and 3-7-00)
Balance $18,920

On Exhibit 1, BRUCE listed the following feed on hand:

Silage 300 ton $40 per ton
Oatlage 100 ton 40 per ton
Hay 150 ton 40 per ton

BRUCE testified that the silage and oatlage amounts were estimates that could have been off by as much as twenty percent (20%). He continued to use the feedstuffs from mid-December through early March to feed his livestock. In addition to his own cattle, BRUCE testified that he used the feed for his sons’ show cattle (12-14 head). His sons traded their labor for it and AKERS was aware of and acquiesced in this arrangement.

The DEBTORS denied converting any feedstuffs. BRUCE testified that all of the feed on hand in December, 1999, was fed to the livestock, except for the small amount of hay sold at auction on March 14, 2000. And, as with the grain, the feedstuff quantities listed on Exhibit 1 are soft numbers, off by as much as twenty percent (20%). PCA again erroneously uses 1-25-00, rather than mid-December, as the starting point. TROLINE’S estimated feed usage for 40 days (1-25-00 to 3-6-00) at $2,500.00 worth of feed, based on his personal experience and the University of Illinois statistical averages, should be doubled in order to cover December and January. Even with these adjustments, however, there exists an unexplained shortfall of about $12,000.00 worth of feed. BRUCE was not directly asked to explain the discrepancy of this magnitude at trial. It is possible some of the feed went out the back door but, here again, PCA offered no evidence of undisclosed transfers or secret sales of feed, or use of the feed for livestock other than the cattle owned by the DEBTORS and their sons.

The Court found the DEBTORS to be credible witnesses. Although a debtor’s failure to explain loss of an asset may be considered by the Court in a case involving alleged conversion, it is still the creditor’s burden to prove conversion by a preponderance of the evidence. The uncorroborated inference of conversion based on the DEBTORS’ mid-December inventory estimates is simply not enough to outweigh the DEBTORS’ denial of conversion in light of all of the evidence. PCA has failed to prove by a preponderance of the evidence that the DEBTORS converted feed.


PCA alleges conversion of several federal program payments in the total amount of $9,701.48, consisting of the following:

01/29/00 New farm payment $4,317.00
03/01/00 CCC market gain 440.00
04/06/00 CCC market gain 861.48
09/12/00 FSA 497.00
12/31/00 FSA oilseed pint 3,586.00

The DEBTORS admit that PCA held a perfected security interest in their right to receive any federal program payments. PCA alleges that the DEBTORS received the five (5) payments listed above and failed to turn the funds over to PCA.

BRUCE referred to the government payment received on January 29, 2000, on his December, 1999, asset list as follows:

“Gov. Payment — New Farm — $4,000”
The actual amount received was slightly higher. He testified that in December, 1999, he rented a new farm and enrolled it in a federal program. He received a program payment of $4,317.00, but later abandoned tbe lease. He was sued by the owners for the payment amount. In Schedule F, he listed the debt of $4,317.00 for “advance government payment” owed to Kelly Frederick. Exhibit 7 reflects receipt of the payment on January 29, 2000.

At trial, BRUCE asserted that because he abandoned the lease, the government payment “was not really his money” and should have been paid to the landlord. The evidence is clear, however, that BRUCE was entitled to the payment when he received it. The evidence also supports the conclusion that, whether it realized it or not, PCA actually realized the benefit of the payment.

The farm account records for January, 2000, evidence that the $4,317.00 was deposited in the account on January 31, 2000, along with proceeds from the sale of beans in the amount of $2,580.90 and proceeds from the sale of seed beans in the amount of $35,102.77. Prior to that deposit of $42,000.67, the farm account had a negative balance of lt$1,808.92gt. The deposit gave the account a positive balance of $40,191.75. Also, on January 31, 2000, the farm account was debited $9.00 for an insufficient funds charge and $400.00 for withdrawals by the DEBTORS. On February 1, 2000, an additional deposit of $1,865.59 was made for corn proceeds, giving the account a balance of $41,648.34. On February 1, 2 and 3, four expense payments were debited for feed, repair, truck payment and insurance, totaling $1,761.62, leaving an account balance of $39,886.72. On February 3, 2000, the DEBTORS then gave PCA a check for $39,000.00, leaving a balance in the farm account of $886.72. The bank account records admitted as Exhibits 4 and 5, thus support the conclusion that the $4,317.00 government payment was used for the payment of reasonable expenses[6] and/or paid to PCA as part of the $39,000.00 payment on February 3, 2000. The government payment was permissibly deposited into the farm account and used for permissible expenses and a payment to PCA. Under these circumstances, PCA has failed to prove that the DEBTORS converted the $4,317.00 government program payment.

The two (2) small CCC market gain “payments” are reflected both as income items and loan payments on Exhibit 7, which TROLINE testified was a transaction report prepared for the purpose of the DEBTORS’ income tax preparation, that was obtained through discovery. On the cash transaction portion of Exhibit 6, however, the $440.00 item is shown exclusively as part of the payment to CCC on March 1, 2000, in the amount of $21,450.00. There is no entry showing a deposit of the $440.00. Nor did the DEBTORS, at trial, admit to having actually received either of the two (2) CCC market gain “payments.”

Based on the record, the Court finds that the DEBTORS did not actually receive payments of $440.00 and $861.48 from CCC. Rather, these sums represent credits issued by CCC for market gain on the stored corn, which were applied against the balance owed by the DEBTORS. These amounts are not government payments subject to PCA’S security interest. Even if they were, PCA received the benefit of those amounts as a credit that reduced the CCC’S prior grain lien.

As to the two (2) FSA payments, each of these payments were received after the DEBTORS closed the farm account, and there does not appear to be any dispute that the payments were actually received. In fact, the DEBTORS’ bankruptcy petition discloses receipt of the oilseed payment in the amount of $3,586.00 on June 7, 2000.[7] The answer filed by the DEBTORS in this proceeding also admits receipt of this payment. This Court finds that the two (2) FSA payments were government payments that were actually received.

Unlike the proceeds from the sale of grain and livestock which were deposited in the farm account and used to pay living and other farm-related expenses, the record is silent as to the disposition of these funds. BRUCE clearly understood that PCA had a right to receive government program payments that were part of its collateral. Since the two (2) payments were received after the farm liquidation was complete, in the absence of any explanation by the DEBTORS, this Court must conclude that the funds were expended for personal use and the failure to turn over these government payments to PCA constitutes a willful and malicious conversion for purposes of Section 523(a)(6). Due to the testimony that CINDY was only marginally involved in the farming operations and that she did not play an active role in liquidating the collateral, and in the absence of any testimony that she acted in concert with BRUCE or directly benefitted from the conversion of the funds, and in light of their separation at about that time, a judgment for nondischargeability will not be entered against her, but will be entered against BRUCE, only, in the amount of $4,083.00, the sum of the two (2) FSA payments.


PCA also alleges that BRUCE used proceeds from its collateral to pay off a contract to purchase the SNAPP FARM, that BRUCE sold the SNAPP FARM shortly thereafter, and used the proceeds to purchase a house located at 1454 23rd Avenue, Avon, Illinois 61415. When that property was sold about a year later, BRUCE, through a trust, received net proceeds of $9,543.59.

CINDY testified that BRUCE was buying the SNAPP FARM from Frank Snapp on a contract for deed. CINDY was not a party to the contract as it predated her marriage. In January, 2000, the principal balance on the contract was $4,500.00. BRUCE paid the contract off in order to obtain the deed so he could resell it and did, in fact, sell it to a buyer she referred to as Maloney. She testified that the proceeds were then used to purchase the house in Avon in May, 2000.

BRUCE, in his testimony at trial, admitted using $4,500.00 to pay off the contract for deed to the SNAPP FARM, but claimed not to remember where the money came from. Exhibits 6 and 7 reflect a payment of $6,717.60 on March 14, 2000, that is referenced to “Snap (sic) Farm,” broken down between $4,510.00 for principal and $2,207.60 in interest, and that the source of the payment was the $9,139.00 in cash that was obtained when the farm account was closed out on February 23, 2000, that clearly derived from the sale of PCA’S collateral. The March 14, 2000, payment was made by BRUCE well after the liquidation plan with PCA was in effect. The payment was not a reasonable or necessary farm operating expense or living expense. Despite BRUCE’S claimed failure of memory, the evidence supports the conclusion that the funds used by BRUCE to pay off the contract were proceeds from PCA’S collateral.

Accordingly, the Court finds that the preponderance of the evidence supports the conclusion that the $6,717.60 payment made by BRUCE to pay off the SNAPP FARM contract was made with proceeds from the sale of PCA’S collateral. Since that payment was not a reasonable farm operating or personal living expense, it was not a justified use of the funds. BRUCE intentionally used the funds for an impermissible purpose in conscious disregard of his obligation to PCA, without just cause or excuse. His conduct was, therefore, willful and malicious for purposes of Section 523(a)(6). A judgment for nondischargeability in the amount of $6,717.60, plus interest, will be entered against BRUCE only.


In the Complaint’s prayer for relief, PCA requests an award of costs and prejudgment interest. Prejudgment interest is presumptively available in cases governed by federal law, including cases under Section 523 of the Bankruptcy Code. In re Glatstian, 215 B.R. 495, 497 (Bankr.D.N.J. 1997). Prejudgment interest is appropriate when the plaintiff has been wrongfully deprived of its money and is necessary to make the wronged party whole. Id. The rate of prejudgment interest in nondischargeability actions is calculated pursuant to 28 U.S.C. § 1961. In re Senese, 245 B.R. 565, 578 (Bankr.N.D.Ill 2000). The interest accrues from the date of conversion. Glatstian, 215 B.R. at 498.

The Court holds that in this case, where PCA was wrongfully deprived of the use of its money by BRUCE’S acts of conversion of its collateral, PCA is entitled to prejudgment interest. Three separate calculations are necessary. First, the conversion of the $6,717.60 that BRUCE used to pay off the SNAPP FARM contract, occurred on March 14, 2000. Interest accrues on that amount from that date at the rate of 6.197%. Second, the conversion of the FSA oilseed program payment of $3,586.00 occurred on June 7, 2000. Interest accrues on that amount from that date at the rate of 6.375%. Third, the conversion of the FSA program payment in the amount of $497.00 occurred on September 12, 2000. Interest accrues on that amount from that date at the rate of 6.241%.

The prejudgment interest to be awarded to the date of this Opinion and Judgment Order, September 6, 2002, is as follows:

Converted Amount Rate Interest

$6,717.60 6.197% $1,032.84
3,586.00 6.375% 513.95
497.00 6.241% 61.55
TOTAL $1,608.34

PCA is also entitled to an award of costs in the amount of $150.00 for the Adversary Complaint filing fee.

This Opinion constitutes this Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate Order will be entered.


For the reasons stated in an Opinion entered this day, IT IS HEREBY ORDERED as follows:

1. On the oral motion of 1st Farm Credit Services, PCA, Count IV is withdrawn.

2. The debts of CINDY L. LOCK to 1st Farm Credit Services, PCA, are determined to be dischargeable.

3. The debts of BRUCE H. LOCK to 1st Farm Credit Services, PCA, are determined to be nondischargeable in the amount of $10,800.60, plus interest and costs, with the balance of his debts determined to be dischargeable.

4. Judgment is entered in favor of CINDY L. LOCK and against 1st Farm Credit Services, PCA.

5. Judgment is entered in favor of 1st Farm Credit Services, PCA, and against BRUCE H. LOCK in the amount of $10,800.60, plus prejudgment interest of $1,608.34 and costs of $150.00, for a total judgment amount of $12,558.94.

[1] Title was taken in the name of Marquette Bank Illinois, as Trustee. That property was sold on July 7, 2001, with the net proceeds payalie to the seller of $9,543.49.
[2] Count IV, concerning prepaid seed, was voluntarily dismissed by PCA at the beginning of the trial.
[3] TROLINE acknowledged that the DEBTORS would have been entitled to some family living expenses and that PCA’S loss calculation (Exhibit 11) makes no provision for such expenses.
[4] PCA does not challenge any specific payment or withdrawal from the farm account as unreasonable.
[5] The exception is the withdrawal of the $9,139.00 when the account was closed on February 23, 2000 and the subsequent payoff of the SNAPP FARM contract. The propriety of BRUCE’S use of those proceeds is addressed later in this Opinion.
[6] Here, again, PCA is not claiming that the expenses paid by the DEBTORS, or the two cash withdrawals of $200.00, were not reasonable.
[7] Exhibit 7 reflects that the payment was received on Dec. 31. 2000. Because the schedules constitute judicial admissions, the Court finds that the date of receipt of the oilseed program payment is June 7, 2000.