THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, November 1, 1995 TAG: 9511010506
SECTION: FRONT PAGE: A2 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 52 lines
Banks may temporarily freeze checking or savings accounts held by people who default on loans and file for bankruptcy, the Supreme Court ruled Tuesday.
The court said a Maryland bank had the right to freeze David Strumpf's checking account because he owed money on a separate loan and had filed for bankruptcy protection.
Forcing a bank to release such money ``would divest the creditor (the bank) of the very thing that supports the right'' to collect repayment of the loan, Justice Antonin Scalia wrote for the court.
Strumpf, then of Greenbelt, Md., filed in January 1991 to reorganize his debts under Chapter 13 of the federal bankruptcy law. When a bankruptcy petition is filed, creditors are automatically barred from moving to collect what they are owed.
Citizens Bank of Maryland sought a bankruptcy judge's permission to take about $3,250 from Strumpf's checking account to cover the unpaid part of a loan he received in 1989. While its request was pending, the bank put a hold on $3,500 in Strumpf's checking account.
Strumpf contended the hold on his money violated the automatic ban on efforts to collect payment on debts. A bankruptcy judge agreed and ordered Citizens Bank to pay Strumpf $900 in lawyers' fees and damages.
Nineteen days later, the judge decided the bank could take money from Strumpf's checking account to pay off the loan, but Strumpf had emptied his account by then.
The bank appealed, and a federal judge lifted the damage award. But the 4th U.S. Circuit Court of Appeals reinstated it, saying the bank could not freeze Strumpf's money.
The Supreme Court reversed the appeals court's ruling. Scalia said the bankruptcy law lets creditors temporarily freeze someone's account while seeking authorization to use the money to offset a debt the bankrupt person owes to the creditor.
The court also ruled in a Mississippi boundary case involving a dispute over a 2,000-acre area that stretches seven miles along the Louisiana bank of the Mississippi River.
The justices adopted a special master's finding that the land once was an island in Mississippi known as Stack Island, and that it therefore still is part of Mississippi.
KEYWORDS: U.S. SUPREME COURT RULING by CNB