Judge approves insurance payments in HomeGold bankruptcy

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Attorneys for the sub-prime mortgage lender and some of its creditors requested the premium be paid to ensure the policy will remain in effect if the companies' officers and directors are ever found to have been negligent in performing their duties.

HomeGold filed March 31 for Chapter 11 bankruptcy protection, saying it had debts in excess of $282 million, with $275 million due to its Carolina Investors Inc. subsidiary.

HomeGold hasn't yet filed an inventory of its assets, including what amounts may be collectable from its mortgage business.

Carolina Investors failed to open for business March 24, saying it had run out of funds to operate. It filed for Chapter 11 bankruptcy protection on April 9.

During a 90-minute hearing in Spartanburg, attorney R. Geoffrey Levy told Bankruptcy Judge W. Thurmond Bishop that failure to pay to extend the liability insurance would be like "throwing the baby out with the bath water."

HomeGold creditors at some point may be determined to be due the insurance proceeds "and there would be no funds potentially to pay the creditors," said Levy, who represents Carolina Investors in its bankruptcy.

Bishop directed that the premium be paid from $1.5 million due HomeGold from Household Financial Corp., one of several major financial firms for which it has generated mortgage accounts.

The judge also said he will appoint one examiner to determine the facts in both the HomeGold and Carolina Investors bankruptcies cases. He scheduled the next hearing in the HomeGold case for April 28 in Columbia.

At Tuesday's hearing, J. Jerome Hartzell, a Raleigh attorney, was unsuccessful in his attempt to have the Household funds put in escrow for a North Carolina class-action case in which HomeGold had agreed to pay a $1.5 million settlement.

The money was promised in an agreement signed Feb. 24 and 25, but Bishop said the North Carolina parties had not protected their claim in bankruptcy.

The judge approved HomeGold's posting of a $12,210 deposit with the South Carolina Electric & Gas Co. for continued service to its buildings. Under bankruptcy law, utility claims are given priority.

The bankruptcy cases represent only one aspect of the legal proceedings involving HomeGold and Carolina Investors.

Three investors suits have been filed in state courts in Greenville, Pickens and Lexington counties against the companies, affiliates, current and former officers and directors, seeking to recoup funds entrusted to Carolina Investors.

In all, more than 8,000 customers, most from the Upstate, had accounts with Carolina Investors.