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Trustee John S. Lovald v. First Fidelity Bank, Leroy Emil Neuharth, and Jefferson-Pilot Life Insurance Co. (In re Leroy Emil Neuharth)

Bankr. No.: 
97-30155
Adv. No.: 
98-3004
Chapter: 
7
Date of Decision: 
March 19, 1999
Issue: 
Whether the debtor's pre-petition assignment of a life insurance policy to a bank in lieu of further payment on a debt and in exchange for the release of other collateral, was valid on the petition date or otherwise subject to the Chapter 7 trustee's strong arm powers?
Ruling: 
The assignment was a true assignment that transferred essentially all ownership of the life insurance policy to the bank from the debtor. Under state law, the bank did not have to maintain an insurable interest for the assignment to remain valid. The debtor had no defenses to the validity of the assignment on the petition date that the trustee could raise under 11 U.S.C. § 558 and the trustee could not avoid it under § 544(a)(1) as a hypothetical judicial lien holder.
Full Bankruptcy Court Decision: