Segobiano v. Legacy Construction Services LLC — Motion to Dismiss Granted

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Jan. 15, 2026 Get Citation Alerts Download PDF Add Note

In Re: Jeffrey A. Segobiano v. Legacy Construction Services, LLC

United States Bankruptcy Court, C.D. Illinois

• Citations: None known
• Docket Number: 25-07003

• Precedential Status: Unknown Status

• Opinion

• Authorities (22)

• Cited By (0)

• Summaries (0)

• Similar Cases (20.8K)

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Trial Court Document

SIGNED THIS: January 15, 2026

Mary P. Gorman
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF ILLINOIS
In Re )
) Case No. 25-70081
JEFFREY A. SEGOBIANO, )
) Chapter 7
Debtor. )
___)
)
LEGACY CONSTRUCTION )
SERVICES, LLC, )
)
Plaintiff, )
Vv. ) Adv. No. 25-07003
)
JEFFREY A. SEGOBIANO, )
)
Defendant. )

Before the Court is the Defendant’s Motion to Dismiss Plaintiffs
Complaint. For the reasons set forth herein, the Motion will be granted without
prejudice. The Plaintiff will be given an opportunity to file an amended complaint.

I. Factual and Procedural Background
Jeffrey A. Segobiano (“Debtor”) filed his voluntary petition under Chapter 7
on January 30, 2025. Relevant to the issues here, the Debtor disclosed on his

Statement of Financial Affairs that he owned a construction company, MLB
Construction Services LLC, that had been operating since 2018. He also
disclosed that Legacy Construction Services, LLC had pending lawsuits against
MLB and the Debtor in both Illinois and Ohio. The Debtor scheduled Legacy as
an unsecured creditor in the amount of $221,600.
Legacy timely filed an adversary complaint against the Debtor requesting
that the Debtor’s discharge be denied, or alternatively, that the debt owed to it
by the Debtor be excepted from his discharge. Attached to the adversary

complaint was a copy of a judgment entered in Ohio in favor of Legacy and
against both MLB and the Debtor in the amount of $200,000 plus prejudgment
interest and costs of suit. Legacy says that the judgment was registered in the
Circuit Court in McLean County, Illinois, and that a citation had been issued to
the Debtor by the Illinois court in November 2024.
Including the several paragraphs regarding jurisdiction and venue and
explaining who the parties are and what their relationship to each other is, the
complaint sets forth 53 introductory paragraphs mixing information about the

loan Legacy made to the Debtor with allegations about what the Debtor testified
to at his creditors meeting and the information contained in his bankruptcy
filings. From there, Legacy pleads Count I by incorporating all 53 of the initial
allegations in an attempt to set forth a cause of action under §523(a)(2). The
complaint continues with three counts attempted to be pleaded under §727(a)(3),
(4)(A), and (5), each incorporating everything pleaded in all the preceding counts.
As a result, the final Count IV is comprised of 74 incorporated paragraphs, one

paragraph alleging the incorporation of the prior paragraphs, and only three
paragraphs specifically pleaded as to the intended cause of action.
The Debtor filed his Motion to Dismiss the adversary complaint,
contending that each count failed to state a claim upon which relief can be
granted. Legacy filed a brief in opposition to the Motion to Dismiss. Before the
Debtor’s reply brief was due, his attorney moved to withdraw and was allowed to
do so. At the request of his withdrawing attorney, the Debtor was granted
additional time to file a reply but failed to file anything further. The Motion to

Dismiss is ready for decision.

II. Jurisdiction
This Court has jurisdiction over the issues before it pursuant to 28 U.S.C.
§1334. All bankruptcy cases and proceedings filed in the Central District of
Illinois have been referred to the bankruptcy judges. CDIL-Bankr. LR 4.1; see 28
U.S.C. §157 (a). Objections to discharge as well as the determination of the
dischargeability of a particular debt are core proceedings. 28 U.S.C. §157 (b)(2)(I),

(J). The issues here arise from the Debtor’s bankruptcy itself and from the
provisions of the Bankruptcy Code and may therefore be constitutionally decided
by a bankruptcy judge. See Stern v. Marshall, 564 U.S. 462, 499 (2011).
III. Legal Analysis
To survive a motion to dismiss, a complaint must allege enough factual
allegations to plausibly suggest a claim for relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A complaint must (1) provide a defendant with fair
notice of the claim that is made against him and the grounds for the relief
requested and (2) “plausibly suggest that the plaintiff has a right to relief, raising
that possibility above a speculative level[.]” EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (internal quotation marks omitted) (citing
Twombly, 550 U.S. at 555); see also Fed. R. Civ. P. 8(a); Fed. R. Bankr. P. 7008.
Under the fair notice standard, “a plaintiff’s obligation to provide the ‘grounds’
of his ‘entitlement to relief’ requires more than labels and conclusions, and a

formulaic recitation of the elements of a cause of action will not do[.]” Twombly, 550 U.S. at 555. Twombly “demands more than an unadorned, the-defendant-
unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(citations omitted). While detailed specifics may not be required, there must be
some facts alleged to support each element of the cause of action. Id. at 678-79;
see also Olson v. Champaign Cty., 784 F.3d 1093, 1098-99 (7th Cir. 2015).
As for the plausibility requirement, “[a] claim has facial plausibility ‘when
the plaintiff pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.’” Bissessur v.
Indiana Univ. Bd. of Trustees, 581 F.3d 599, 602 (7th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). When ruling on a motion to dismiss, a court must accept as
true all well-pleaded factual allegations contained within a complaint. Iqbal, 556
U.S. at 678. Those well-pleaded facts, however, must “permit the court to infer
more than the mere possibility of misconduct[.]” Id. at 679. And when pleading
fraud, the circumstances constituting the fraud must be pleaded with

particularity. Fed. R. Civ. P. 9; Fed. R. Bankr. P. 7009.
Legacy asserts in its brief that it is not required to plead specific legal
theories to avoid dismissal for failure to state a claim. That is true. See King v.
Kramer, 763 F.3d 635, 642 (7th Cir. 2014) (citations omitted). But the principle
relied on by Legacy holds only that a plaintiff need not cite a specific legal
authority as the basis for a claim or identify the claim by a specific title. Id. If the
facts necessary to state a claim are pleaded, the complaint may stand regardless
of whether the cause of action is properly identified. Id. Where the facts are

insufficient to state any plausible cause of action, however, the complaint will be
dismissed. Twombly, 550 U.S. at 570.
In considering the complaint here, it is also important to note that
statements made “in a pleading may be adopted by reference elsewhere in the
same pleading[.]” Fed. R. Civ. P. 10(c); Fed. R. Bankr. P. 7010. But when it would
promote clarity, “each claim founded on a separate transaction or occurrence . .
. must be stated in a separate count[.]” Fed. R. Civ. P. 10(b); Fed. R. Bankr. P.
7010. This Court previously commented on the pitfalls of pleading by

incorporation:
This style of pleading—incorporating by reference everything in
the complaint and prior counts whether or not what is
incorporated has anything to do with the cause of action
attempted to be pleaded in the particular count—is an
unfortunately common practice. But the practice of throwing all
allegations into every count makes it difficult to determine exactly
what has been pleaded that might actually be relevant to the
particular count. Making a court weed through allegations that
might be relevant to something in the case but not to the count
at issue is, quite frankly, an annoying practice that does not
benefit the pleader.

LPB MHC, LLC v. Farmers State Bank of Alto Pass (In re LPB MHC, LLC), 2025 WL
1778767, at *9 (Bankr. S.D. Ill. June 26, 2025). Other courts have expressed
similar frustration with the practice. See, e.g., Stanard v. Nygren, 2009 WL
10681449, at *4 n.5 (N.D. Ill. Jan. 26, 2009) (complaining that listing facts as
common to all counts when they are “nothing of the kind” puts the burden on
the court and defense counsel to determine “which facts support which counts”).
The Court will discuss each count and attempt to identify the facts pleaded in
support of each count. To the extent confusion exists, however, the fault lies with
Legacy for failing to clearly plead the facts that support each count.1

Count I
Notwithstanding Legacy’s assertion that it need not identify its intended
cause of action, Count I is labeled as seeking an exception to discharge under
§523(a)(2). Section 523(a)(2) provides in relevant part:
(a) A discharge under section 727 . . . of this title does not discharge
an individual debtor from any debt—

. . .

(2) for money, property, services, or an extension, renewal, or
refinancing of credit, to the extent obtained by—

1 Legacy seems to be aware of the inadequacies of its factual presentation because it sets forth more facts and better
explanations of its claims in its brief. But those explanations do not save its defective complaint. They simply highlight
the fact that the original complaint could have been more clearly pleaded.
(A) false pretenses, a false representation, or actual fraud,
other than a statement respecting the debtor’s or an
insider’s financial condition; [or]

(B) use of a statement in writing—

(i) that is materially false;

(ii) respecting the debtor’s or an insider’s financial
condition;

(iii) on which the creditor to whom the debtor is liable for
such money, property, services, or credit reasonably
relied; and

(iv) that the debtor caused to be made or published with
the intent to deceive[.] 11 U.S.C. §523 (a)(2)(A)-(B).
Count I includes allegations that the Debtor and MLB promised to repay
to Legacy a $200,000 loan but that the promise was a false representation. No
details of when, where, or how the representation was made are included. Count
I also alleges that the representation of repayment was made by the Debtor
knowing that he did not intend to repay the debt and with the intent to deceive.
No factual details in support of these allegations are pleaded. Count I
incorporates the first 53 paragraphs of the complaint, but only two of those
paragraphs appear to be related to the allegations of a fraudulent
misrepresentation regarding payment of the loan. Paragraphs 29 and 30 include
the same allegations—actually legal conclusions—as found in Count I that the
Debtor made a false promise to repay, that he knew he would never repay the
loan, and that he intended to deceive Legacy. No further facts are pleaded on the
issue of fraud in the introductory paragraphs of the complaint.
Legacy says that it does not have to identify whether it is trying to state a
claim under §523(a)(2(A) or §523(a)(2)(B). As set forth above, that is true but not
necessarily helpful here. Legacy must state a claim under one of the two

provisions even if the claim is not specifically labeled. The complaint here fails
to state a claim under either provision.
The elements of both causes of action include fraudulent
misrepresentation and intent to deceive. Ojeda v. Goldberg, 599 F.3d 712, 716-
17 (7th Cir. 2010); Fischer Inv. Capital, Inc. v. Cohen (In re Cohen), 507 F.3d 610,
613 (7th Cir. 2007). A factual basis for each element must be included in the
complaint to survive a motion to dismiss. Iqbal, 556 U.S. at 678-79. Here, Count
I lacks any factual allegations regarding fraudulent misrepresentation and intent

to deceive and therefore must be dismissed. Although intent may be pleaded
generally, it may not be pleaded as just a legal conclusion without any
supporting facts. Schiller DuCanto & Fleck, LLP v. Potter (In re Potter), 616 B.R.
745, 751 (Bankr. N.D. Ill. 2020).
A simple breach of contract is not a basis for holding a debt non-
dischargeable. In re Davis, 638 F.3d 549, 554 (7th Cir. 2011) (citing United States
ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005) (“failure to
honor one’s promise is (just) breach of contract”)); Allen v. Freund, 2017 WL

2728432, at *4 (E.D. Wis. June 23, 2017) (“breach of contract . . . creates only a
dischargeable debt”). Promising to pay with an intent not to pay may be fraud.
Holtz v. JPMorgan Chase Bank, 846 F.3d 928, 932 (7th Cir. 2017). But the
underlying facts that support a finding of intent not to pay from the inception of
the loan must be pleaded; just alleging a failure to pay does not by itself support
a finding of intent not to pay from the inception of the loan. Potter, 616 B.R. at
752-53. Here, Legacy pleads only the conclusion that the Debtor never intended

to pay without setting forth any factual basis for the conclusion. Accordingly,
Count I fails to state a plausible claim under either §523(a)(2)(A) or §523(a)(2)(B)
and must be dismissed.
The dismissal will be without prejudice and with leave to replead. If Legacy
chooses to replead, it should consider the Supreme Court’s decision in Lamar,
Archer & Cofrin, LLP v. Appling, 584 U.S. 709 (2018). In Appling, the debtor, in
an effort to get a law firm to continue to represent him, not only promised that
he would pay past due bills but also represented that he would be receiving

significant tax refunds and would use the refunds to make the promised
payments. When the debtor did not pay and, in particular, did not use the
refunds to pay, the law firm sued and the debtor filed bankruptcy. The debt was
held nondischargeable by the bankruptcy court but ultimately held
dischargeable by the Supreme Court. The Court found that the phrase in
§523(a)(2)(B) about a statement “respecting” a debtor’s financial condition
referred to any information that “has a direct relation to or impact on the debtor’s
overall financial status.” Id. at 720. And the Court found that the Appling debtor’s

representation about the source of funding for his promised payments was a
statement about his financial condition and therefore needed to be in writing to
be actionable under §523(A)(2)(B). Id. at 712-14. Since Appling, a number of
courts have considered whether particular statements are about a debtor’s
financial condition and must therefore be in writing if they are to form a basis
for a nondischargeability complaint. See Potter, 616 B.R. at 752 (collecting
cases).

A full discussion of the nuances of Appling is not needed at this point.
Legacy has not provided even a clue as to what statements or conduct of the
Debtor provide a basis for the legal conclusion that he made false representations
when he borrowed the funds with MLB and that he never intended to have MLB
or himself repay the loan. Only when such facts are pleaded can an analysis be
done to determine whether the statements are about the Debtor’s or MLB’s
financial condition and must be in writing to be actionable. And only when such
facts are pleaded can an analysis be done to determine whether Legacy can state

a plausible claim for relief under either §523(a)(2)(A) or §523(a)(2)(B). If Legacy
repleads, it must do so in a clear manner that will allow the required analysis to
be done.

Count II
Count II is labeled as seeking a denial of the Debtor’s discharge under
§727(a)(4)(A) which provides for such relief if “the debtor knowingly and
fraudulently, in or in connection with the case . . . made a false oath or

account[.]” 11 U.S.C. §727 (a)(4)(A). To state a claim for relief under §727(a)(4)(A),
a plaintiff must plausibly allege that: (1) the defendant made a statement under
oath; (2) the statement was false; (3) the defendant knew the statement was false;
(4) the defendant made the statement with fraudulent intent; and (5) the
statement related materially to the bankruptcy case. Stamat v. Neary, 635 F.3d
974, 978-79 (7th Cir. 2011). Bankruptcy schedules, statements of financial
affairs, and testimony at a creditors meeting or a Rule 2004 examination are all

statements made under oath for purposes of §727(a)(4)(A). Layng v. Pansier (In
re Pansier), 613 B.R. 119, 160 (Bankr. E.D. Wis. 2020). Because a fraudulent act
is an element of the cause of action, fraud must be pleaded with particularity to
state a claim. New Century Bank v. Carmell (In re Carmell), 424 B.R. 401, 418 (Bankr. N.D. Ill. 2010); Fed. R. Civ. P. 9(b); Fed. R. Bankr. P. 7009.
In Count II, Legacy alleges that the Debtor provided one set of facts in his
petition and schedules and another set of facts when questioned at his creditors
meeting. Legacy says that both sets of facts cannot be true and that the Debtor

therefore acted with fraudulent intent or reckless indifference either in preparing
his documents or in testifying at the meeting. No particular statements in either
the Debtor’s filed documents or his testimony are identified in Count II. An
allegation is also made that the false statements relate materially to this case
but, again, no specific statements are identified and no specific facts are pleaded
in Count II in support of the allegation.
Count II incorporates by reference the prior 59 paragraphs of the
complaint that include the 53 paragraphs of introduction and the 6 paragraphs

of Count I that relate to the original loan transaction but, as far as the Court can
tell, not to the issues raised in Count II. Paragraphs 34 through 59 of the
introductory paragraphs are labeled as “False and Omitted Statements or
Misrepresented in Bankruptcy Proceeding.” Reviewing these specific paragraphs
and all the other introductory paragraphs provides some hints as to what Legacy
is trying to say. Unfortunately for Legacy, however, the allegations are too cryptic
and confusing to meet the required pleading standards.

For example, at paragraph 48, Legacy says “Segobiano’s false
characterization of monthly gifts made within 2 years before the filing for
bankruptcy as an expense is a false oath, made under penalty of perjury.” Yet
nowhere in the section labeled as providing the facts about misrepresentations—
paragraphs 34 through 59—are any facts pleaded about any gifts made or
monthly expenses paid by the Debtor; the only allegation is the legal conclusion
set forth in paragraph 48. Looking elsewhere in the introductory paragraphs,
however, an allegation is made at paragraph 25 that the Debtor testified at the

creditors meeting that he pays $2800 per month for his adult daughter’s rent.
The Debtor listed the rent payment for his daughter as an expense on his
Schedule J and apparently confirmed the payment during his testimony at the
creditors meeting. Thus, this issue is not one where the Debtor’s schedules set
forth one set of facts and his testimony sets forth a different set of facts as alleged
in Count II. Further, no facts are pleaded to establish that the payments are or
were a gift or that the Debtor’s making the payments relates materially to the
case. Importantly, no facts are set forth that would support a finding that,

notwithstanding the listing and disclosure of the payments on Schedule J, the
Debtor’s failure to list the payments again as gifts on his Statement of Financial
Affairs was fraudulent. The facts as pleaded by Legacy suggest that the Debtor
was not hiding the payments; nothing was pleaded to support an inference that
the Debtor acted fraudulently by disclosing the payments once but not twice on
his documents. 4820 & 4901, LTD v. Tesler (In re Tesler), 647 B.R. 710, 723
(Bankr. N.D. Ill. 2023) (court cannot infer intent to defraud based solely on a

debtor’s failure to comply with the instructions for completing bankruptcy
forms).
Legacy makes other allegations scattered through the introductory
paragraphs of the complaint. Again, for example, it says that the Debtor
undervalued real estate and personal property. At paragraph 52, Legacy,
apparently referring to the valuations, says that the Debtor admitted at his
creditors meeting that “these statements were not correct.” But Legacy does not
point to any particular statement that was not correct and does not allege what

values might be correct in order to support an allegation that the statements, if
incorrect, are material. And, again importantly, no facts are alleged to support
an allegation that the false oaths, if made, were made with fraudulent intent.
Further, suggesting that a presumption of fraud arises because the Debtor
scheduled his home value for the amount he paid for it 20 years ago is not
supported by case law and is insufficient to meet the required pleading
standards.
Legacy also alleges at paragraph 38 that the Debtor understated his

income on his Statement of Financial Affairs. At paragraph 41, Legacy says that
the Debtor’s personal income shown for 2024 was less than the amount of the
loan proceeds paid to MLB by Legacy. But Legacy makes no claim that the loan
proceeds were paid to the Debtor as compensation. To the contrary, at paragraph
16, it refers specifically to the fact that MLB purchased materials for a project
with the loan proceeds. Legacy’s allegation that “on information and belief” the
Debtor received more income than disclosed, without providing any further

details, is inadequate to state a plausible claim.
There are other allegations throughout the introductory paragraphs that
may be intended to support the claim attempted to be pleaded in Count II. But
the above examples show the problems with the pleading. The allegations in
Count II are inadequate to support the claim, and searching through the many
introductory paragraphs for support is a frustrating endeavor. The Court should
not be burdened with trying to find sufficient allegations to support a claim when
Legacy has failed to plead the necessary allegations in a clear and organized

manner. Count II fails to meet the required pleading standards and must be
dismissed.

Count III
Count III is labeled as seeking the denial of the Debtor’s discharge under
§727(a)(3), which provides for such relief if:
(3) the debtor has concealed, destroyed, mutilated, falsified, or
failed to keep or preserve any recorded information, including
books, documents, records, and papers, from which the debtor’s
financial condition or business transactions might be
ascertained, unless such act or failure to act was justified under
all of the circumstances of the case[.] 11 U.S.C. §727 (a)(3). A debtor has an affirmative duty “to produce books and
records that accurately document its financial affairs.” Schaumburg Bank &
Trust Co. v. Hartford (In re Hartford), 525 B.R. 895, 909 (Bankr. N.D. Ill. 2015)
(citations omitted). “The completeness and accuracy of a debtor’s records are to
be determined on a case-by-case basis, considering the size and complexity of
the debtor’s financial situation.” Baccala Realty, Inc. v. Fink (In re Fink), [351 B.R.

511, 522-23](https://www.courtlistener.com/opinion/1804108/baccala-realty-inc-v-fink-in-re-fink/#522) (Bankr. N.D. Ill. 2006) (citation omitted). Determining the adequacy
of a debtor’s records generally requires a “fact intensive inquiry.” Butler v. Liu (In
re Liu), 288 B.R. 155, 161 (Bankr. N.D. Ga. 2002).
In Count III, Legacy asserts the legal conclusion that the Debtor failed to
keep and preserve adequate financial records that would provide sufficient
information to ascertain the Debtor’s and MLB’s financial condition. By way of
factual support, it alleges only that the Debtor admitted at his creditors meeting
to “significant comingling” between his personal and business accounts. As with

the other counts, Count III incorporates by reference all the prior paragraphs.
Several of those paragraphs appear to provide some factual support for the claim
attempted to be made, but Count III still falls short of stating a claim upon which
relief can be granted.
One allegation that falls short is made at paragraph 42 wherein Legacy
complains that the Debtor, at his creditors meeting, “was unable to provide an
accurate and complete account of his financial affairs[.]” Neither §727(a)(3) nor
any other provision of the Code or Rules requires or even anticipates that a

debtor would be called on to make a complete accounting of his financial affairs
at his creditors meeting. The Debtor is required to provide some documents,
including pay advices and his last tax return, to the trustee before the meeting. 11 U.S.C. §521 (a)(1)(B)(iv), (e)(2)(A). And the Court is aware that the trustees
generally have a list of additional requested documents to be provided before the
meeting; the list often includes several years of tax returns and at least 90 days
of pre-filing bank statements. No allegation is made that the Debtor failed to

comply with either his statutory obligations or the requests of the trustee
regarding pre-meeting document production. A debtor should not be called on to
provide a complete accounting from memory of his financial affairs at the first
meeting, and a failure to be able to do so does not support a finding that a debtor
does not have the records to provide an accounting if given a fair opportunity to
do so.
Another nonstarter is the allegation that, because the Debtor admitted
that he had his current pay deposited into his wife’s account, he failed to keep

adequate records.2 As set forth above, there is no allegation that the Debtor failed
to provide his pay advices to the trustee that should show the depositing of his
net pay. And the Debtor’s employer would most certainly have records of the
deposits as would the Debtor’s wife’s bank. Adequate record keeping does not
require hand kept records; bank statements and other third-party accountings
can serve to provide the required records of a debtor’s financial transactions.
Legacy may be unhappy about the Debtor’s transfer of his income to his wife,
but it has failed to allege any facts that suggest that there are no records of such

transfers.

2 Actually, the complaint alleges at paragraph 22 only that the Debtor “changed his income direct deposit[.]” The
complaint fails to provide any more details. Legacy’s brief elaborates on the issue, but it does not save the defective
complaint.
Legacy comes closest to stating a claim with its allegations of comingling.
Legacy alleges both comingling by the Debtor between his personal and business
accounts and comingling of funds in both accounts by his son’s use of the

accounts. But Legacy makes no factual allegation that the records of such
accounts do not exist; the Court cannot presume the bank account records do
not exist. And Legacy makes no factual allegation that the records are such that
the comingling cannot be sorted. Courts have held that comingling can form the
basis for finding inadequate record keeping. See Union Planters Bank v. Connors, 283 F.3d 896, 900 (7th Cir. 2002); Bay State Milling Co. v. Martin (In re Martin), 141 B.R. 986, 996-97 (Bankr. N.D. Ill. 1992). The cases do not hold, however,
that comingling always requires a finding of inadequate record keeping; rather,

the actual records need to be examined to determine whether the comingling can
be sorted out and a clear accounting can be made from the records. Id. Here,
Legacy falls short because it alleges only that the Debtor could not provide that
clear accounting in his oral testimony at his creditors meeting.
In pleading a claim under §727(a)(3), a plaintiff is not necessarily required
to plead details of what documents “it requested but could not obtain” or to allege
what “records should have been kept but are missing.” Tesler, 647 B.R. at 720.
Allegations that a debtor failed to comply with prior state court discovery or failed

to comply with requested production at a 2004 examination may be sufficient.
Id. Here, Legacy makes no allegation of ever asking for any documents or
reviewing any documents that might have been produced to the trustee. It alleges
only that the Debtor could not give an accounting at his creditors meeting.
Absent any allegation that the Debtor, after some notice or request, could not or
did not produce records or produced inadequate records, Count II fails to state
a claim upon which relief can be granted.

Count IV
Count IV is labeled as seeking a denial of the Debtor’s discharge for failing
to explain the loss or deficiency of assets under §727(a)(5) which provides for
such denial if “the debtor has failed to explain satisfactorily, before determination
of denial of discharge under this paragraph, any loss of assets or deficiency of
assets to meet the debtor’s liabilities[.]” 11 U.S.C. §727 (a)(5). A court may deny
a discharge to a debtor under §727(a)(5) if “the debtor does not adequately

explain a shortage, loss, or disappearance of assets.” First Federated Life Ins. Co.
v. Martin (In re Martin), 698 F.2d 883, 886 (7th Cir. 1983) (citations omitted). The
party objecting to discharge must establish that the debtor owned substantial
and identifiable assets that are no longer available; the debtor must then provide
a satisfactory explanation for the loss. Structured Asset Servs., L.L.C. v. Self (In
re Self), 325 B.R. 224, 250 (Bankr. N.D. Ill. 2005). A debtor’s explanation should
generally be supported by documentation. Id. Although the required proof will
come later, the complaint must, at a minimum, allege a factual basis for each

element of the cause of action. Iqbal, 556 U.S. at 678-79.
In paragraph 76 of Count IV, Legacy alleges that the Debtor “has failed to
adequately explain the disposition of the income he received from MLB
Construction Services LLC and/or Related.”3 And at paragraph 77, Legacy says
that the Debtor “has failed to supply adequate records or provide a satisfactory
explanation to justify the nondisclosure or deficiency of the income and/or

assets.” As with the other counts, Legacy has incorporated all prior paragraphs—
1 through 74 at this point—in Count IV. Because the allegations made in Count
IV are cryptic and lack detail, a review of the prior paragraphs is necessary.
Legacy is focused on the Debtor’s income and may be asserting that the
Debtor’s deposit of his income into his wife’s account creates an unexplained
loss. But as stated above, records most certainly exist to document those
transfers. And the Debtor’s Schedules I and J provide details of the amount of
income now being received and the monthly expenditure of all that income.

Legacy may not like the Debtor’s expenditures and may believe some
expenditures such as payment of his daughter’s rent are improper. But that is a
different issue than whether the disposition of the income has been explained.
The Debtor’s annual income as shown at paragraph four of his Statement of
Financial Affairs is similar to the income he is earning now and suggests that
the schedules fairly document the disposition of his regular income.
Alternatively, Legacy may be focusing particularly on the Debtor’s
admission at his creditors meeting that a $37,800 check received for work done

by MLB was deposited in his personal account on October 2, 2024. The

3 This is another example of confusion in the pleadings that Legacy tries to fix in its brief. “Related” is not defined or
explained in the complaint. In the brief, however, Legacy says “Related” is the name of the entity involved in the
project for which it lent funds and is the entity that made a payment to MLB and the Debtor that the Debtor admits
depositing in his personal account. The explanation in the brief does not fix the confusion in the complaint.
allegations about the check are sufficient to identify an asset that the Debtor
owned. But the complaint says specifically that the funds went into the Debtor’s
bank account, suggesting that records exist as to the disposition of the funds.

As set forth above, the trustees generally require the production of several
months of bank statements and there is no allegation that the Debtor here failed
to comply with the request or that either the Debtor or trustee refused to share
that production with Legacy. Legacy makes no allegation that the disposition of
the asset has not been properly documented or explained; to the contrary, the
only fair reading of the allegations is that the money went into a bank account
for which records exist. The allegations of Count IV are inadequate to state a
claim upon which relief can be granted.

IV. Conclusion
The complaint must be dismissed because none of the counts are
adequately pleaded to state a claim upon which relief can be granted. That is
largely due to the confusing set of facts pleaded as introductory and incorporated
into each count with little to no indication of what facts are intended to support
which count. Further, the complaint is replete with labels and conclusions and
the formulaic recitation of the elements of the claims attempted to be pleaded.

Legacy will be given leave to replead but must put some effort into streamlining
the complaint and clearly pleading each claim.
The posture of the case is that the Debtor is without counsel and may not
be interested in defending the case. That is his choice. But Legacy cannot count
on the Debtor defaulting as it goes about repleading and is admonished that if
similar problems exist with an amended complaint, a prove-up will be required
before any judgment is entered even if the Debtor does not respond and a default

is entered. The Debtor is likewise admonished, however, that the Court is not
trying the case for him. If he does not hire counsel or respond to the amended
complaint, he may be denied his discharge or his debt to Legacy may be excepted
from his discharge notwithstanding weaknesses in Legacy’s case.
This Opinion is to serve as Findings of Fact and Conclusions of Law
pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
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