National City Bank v. Hanaway et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
SHANNON HANAWAY, No. 06-10970
Debtor(s).
______________________________________/
NATIONAL CITY BANK,
Plaintiff(s),
v. A.P. No. 07-1020
SHANNON HANAWAY, et al.,
Defendant(s).
_______________________________________/
Memorandum re Proposed Stipulated Judgment
_________________
The court initially rejected the proposed stipulation in the above matter because the Chapter 7 trustee
had been improperly named as a defendant in a dischargeability action. If a creditor is worried about the
rights of a bankruptcy estate interfering with a settlement with a debtor, the proper procedure is to obtain
abandonment of the estate’s interests by a noticed motion. Even if the court were to have approved the
stipulation, and even though the trustee had signed off on it, the judgment would certainly have been void due
to lack of notice.
Entered on Docket
June 22, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 07-01020 Doc# 6 Filed: 06/22/07 Entered: 06/22/07 13:30:02 Page 1 of 2

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Upon further reflection, the court finds much more fault with the proposed settlement. It appears that
plaintiff is seeking a monetary judgment on a secured debt, thereby waiving its security. While an under-
secured creditor may obtain a judicial declaration that any lawful deficiency debt is nondischargeable, a
monetary judgment is fatal to its secured rights.
Further, the proposed stipulation provides for both a nonjudicial foreclosure and a monetary
judgment. This is in blatant conflict with unwaivable California law. The court will need a detailed
explanation from debtor’s counsel as to why such an important right is being tossed away and a detailed brief
from plaintiff’s counsel as to why the court should (and can) allow a debtor to waive the protections of
California law before it will consider such an unusual judgment.
In short, the court does not believe that it should approve the settlement. The court recommends that
the parties dismiss the Chapter 7 trustee and merely stipulate to a declaration that any lawful and enforceable
deficiency debt will be nondischargeable in whole or in part. If the parties believe that there is justification for
the settlement, they shall set the matter for hearing. Both plaintiff’s counsel and debtor’s counsel shall attend
in person.
Dated: June 22, 2007
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 07-01020 Doc# 6 Filed: 06/22/07 Entered: 06/22/07 13:30:02 Page 2 of 2