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Judge approves Ganslers’ bankruptcy shift to liquidate assets

A federal judge on Tuesday ordered that the bankruptcy status of the father and stepmother of Maryland’s former attorney general be converted from Chapter 11 to Chapter 7, allowing for liquidation of the couple’s assets to pay off their debts.

Jacques Gansler, who served in the Department of Defense under former President Bill Clinton, and his wife, Leah Gansler, who led Washington-based Charity Works, filed for Chapter 11 bankruptcy protection last year after several real estate transactions in Florida left them in debt.

The couple’s creditors, including ADU Investments Inc., from whom they had obtained a one-year, $2.59 million loan in 2012, said the Ganslers’ Chapter 11 reorganization plan was fatally flawed and had urged the court to allow for the liquidation of the couple’s assets.

“Creditors are worse off today than they were at the start of this case, and will be worse off still every day hereafter until a Chapter 7 trustee takes control of the estate and conducts an orderly liquidation of the estate’s assets,” Stephen E. Leach, an attorney for ADU, wrote in a U.S. Bankruptcy Court filing in July.

Douglas F. Gansler, the former attorney general of Maryland and Jacques Gansler’s son, is not involved in the bankruptcy proceedings.

U.S. District Judge Robert A. Gordon said on Tuesday that Jacques and Leah Gansler had proven themselves unfit fiduciaries for the estate, citing the diminution of the estate since the case began 11 months ago, as well as their failure to satisfy numerous obligations for operating under Chapter 11 protection, such as using a debtor-in-possession bank account.

In a memorandum filed in the case in September, Leach, ADU’s attorney, wrote that the reorganization plan proposed by the couple was “based more on fancy than fact,” as it inaccurately reflected the couple’s monthly income, among other flaws.

“The history and current status of this case shows that there is no reasonable likelihood of rehabilitation of the estate or the Debtors,” Leach wrote.

Gordon agreed in his ruling granting the motion to convert to Chapter 7 status, rejecting the Ganslers’ argument that the auction sale of a Florida condominium the couple had bought and modified several years ago by a luxury real estate firm would provide the funds needed to solve their financial difficulties.

“There is no pot of gold that’s going to be left from the sale of the condominium,” Gordon said. “…They don’t have the ability to fund the (reorganization) plan, period, based on the evidence.”

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