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A certificate of deposit is a deposit account where there is an account agreement that prohibits a debtor from transferring or assigning the account without the bank's written consent and only permits the debtor to withdraw or transfer funds from the account using forms approved by the bank.
While still an employee of Four-Sixteen Federal Credit Union, Defendant-Debtor Suzanne Perez obtained a Line of Credit, secured by a pledge of Certificate of Deposit in the name of Suzanne Perez and a pledge of Certificate of Deposit in the name of Marie Ragusa, Suzanne Perez's grandmother, and Laura Hagin, Suzanne Perez's sister. Defendant-Debtor subsequently filed a Chapter 7 Bankruptcy Petition. Based on the absence of a documented pledge of the Ragusa/Hagin Certificate of Deposit, the Credit Union released the Ragusa/Hagin CD, in the approximate amount of $80,000.00, leaving the Credit Union inadequately protected under § 362 of the Code. To remedy the problem, Defendant and the Credit Union entered into a settlement agreement, whereby the defendant agreed that the Credit Union could apply the proceeds of her previously pledged Certificate of Deposit to the balance of her loan with the Credit Union. The Credit Union then submitted a Motion to Approve the Settlement Agreement between the Credit Union and the defendant. The parties additionally sought a Court Order Vacating the Automatic Stay to permit the Credit Union to apply the proceeds of the defendant’s Certificate Deposit to the balance due on the loan. The court entered an Order approving the Motion to Approve the Settlement Agreement and Vacating the Automatic Stay. The Trustee has moved the Court to reconsider and vacate the Order.
Should the court approve the Trustee’s motion to reconsider the approval of the settlement agreement?
The court denied the trustee's motion to reconsider the court's approval of the settlement agreement. According to the court, the Ragusa/Hagin Certificate of Deposit, a non-negotiable and non-transferable Certificate of Deposit, was a deposit account as defined in N.J. Stat. Ann. § 12A:9-102(a)(29), not an instrument. Thus, the credit union held a perfected security interest in the Certificate of Deposit pursuant to N.J. Stat. Ann. § 12A:9-314, as it maintained control of the account. Alternatively, the court held that the statutory lien created under the Act, 12 U.S.C.S. § 1757(11), preempted state law and was perfected at the time its loan to the debtor was made. The statutory lien vested well before the debtor’s bankruptcy case commenced and thus, 11 U.S.C.S. § 545 had no application.