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Developer John Kline’s bankruptcy case, filed days after an arson fire destroyed his million-dollar home in Urbandale, could go up in smoke on Thursday.

U.S. Bankruptcy Judge Lee Jackwig has taken the unusual step of filing her own motion to dismiss the case and has scheduled a hearing for Thursday to consider testimony on both sides of the issue.

Jackwig’s motion came during a hearing last week to determine whether Kline’s attorney, Jerrold Wanek, should be dismissed from the case after he hired an attorney from the U.S. bankruptcy trustee’s office. That motion was filed by the trustee’s attorney, James Snyder.

Attorney Robert Gainer had filed several motions on behalf of the trustee, including a motion to dismiss the case after Kline cited his constitutional right against self-incrimination in refusing to file a detailed accounting of his finances, before going to work for Wanek on Aug. 1. That motion was later withdrawn.

While employed by the government, Gainer also participated in discussions surrounding a possible federal investigation of Kline.

The fire at Kline’s Urbandale home is under investigation by an arson task force that includes federal authorities. He also is one of the subjects of a federal bank fraud investigation.

In a docket entry following last week’s hearing, Jackwig said that if she does not dismiss Kline’s case, she will remove Wanek as his attorney.

“Should the Court not dismiss this Chapter 7 case on September 24, 2009, the Court will enter orders granting the United States Trustee’s motions to disqualify Mr. Wanek as counsel for Mr. Kline,” according to the docket entry filed on Jackwig’s behalf.

If the case is dismissed, Kline can file again for bankruptcy, seeking protection from the same creditors identified in court documents.

Snyder said Jackwig typically would avoid inserting herself into the case by filing the motion.

“She prefers to be a judge,” Snyder said.

Snyder and other bankruptcy specialists noted that it is extremely unusual for a bankruptcy judge to file what is called a sua sponte motion. In other words, the motion is initiated by the judge and not one of the parties to the case.

For Jackwig, filing the motion might be beyond unusual, Snyder said.

“It’s not something she would typically do in a bankruptcy setting,” he said.

The Kline case has been anything but standard.

Prior to filing for bankruptcy, the developer had run afoul of lenders. A Dallas County judge determined in January that he had committed civil fraud by converting a development loan for personal use, including buying art, paying for a private jet service and making political contributions.

After Kline’s home burned, investigators found nearly $10,000 in a fireproof safe. However, Kline would not reveal in the bankruptcy case why he had the money at home.

And the filing, in which Kline sought protection from creditors and liquidation of assets, was unusual because it contained only a bare-bones summary of his financial position.

In the initial filing, Kline checked boxes indicating he had between $1 million and $10 million in assets and $1 million and $10 million in debts.

Wanek obtained a special waiver to file complete financial schedules by March 16. However, when that date arrived, Kline cited his right against self-incrimination in refusing to detail his finances, including tax returns, debts to various banks and sources of income.

Kline again cited his right against self-incrimination in a hearing with creditors in late March.

At the time, Wanek told the Business Record that he advised Kline to claim his right against self-incrimination after learning about a federal bank fraud investigation.

In June, Kline’s wife, Michelle, filed the financial schedules even though she is not listed as a co-debtor in the bankruptcy case. She has sought to protect $10.5 million in insurance policies on the Urbandale home from creditors in the bankruptcy case.

Several creditors have filed motions claiming that Kline should have to pay his debts to them. Once the petition was filed, creditors were prohibited from pursuing collection activities.

In addition, First Bank has filed a separate case in bankruptcy court claiming that Kline committed fraud in obtaining a $4.5 million development loan from the lender and should lose bankruptcy protection.

First Bank alleges in the filing that Kline destroyed financial records and destroyed assets before and after filing for bankruptcy.

The bank has won a $4 million ruling in Polk County District Court over the development loan. If it can prove that Kline committed fraud, the state court judgment would stand.

The civil trustee assigned to the case also has objected to the discharge of Kline’s debts under bankruptcy laws.

Regarding his hiring of Gainer, Wanek said in a court filing that the two have not discussed the case, except to determine that Gainer would not be involved.