In re Cordle

Norman Cordle (debtor) sold insurance for the Farmers Insurance Group of Companies (Farmers). Cordle’s appointment contract with Farmers provided for certain payments to Cordle if the contract were terminated. Cordle borrowed roughly $50,000 from Farmers Insurance Credit Union (the credit union) (creditor) and gave the credit union a security interest in the appointment contract. The credit union perfected its security interest. In March 1995, Cordle filed for Chapter 7 bankruptcy. Cordle then terminated his appointment contract with Farmers and requested that the amounts due to Cordle under the contract be paid to the credit union to repay the loan. Farmers asked the credit union for a payoff demand on the loan and subsequently paid the credit union the demanded amount of $47,000. The credit union had notice of Cordle’s bankruptcy prior to receiving Farmers’ payoff demand. The bankruptcy trustee requested turnover of the $47,000 from the credit union and assured the credit union that the credit union’s rights to the money would be preserved. However, the credit union refused to turn over the $47,000 and instead asked the bankruptcy court for relief from the automatic stay to clarify that the credit union had the right to keep the money. The trustee asked the bankruptcy court to declare that the credit union had violated the automatic stay by keeping the money and also asked the court to impose sanctions on the credit union.