Tri-City Bank & Trust Co. v. Goforth (In Re Goforth)

MEMORANDUM

CLIVE W. BARE, Bankruptcy Judge.

This action concerns the entitlement to proceeds from the settlement of a lawsuit commenced by the defendant debtors, prior to the filing of their chapter 7 bankruptcy petition, to recover damages to real and personal property formerly owned by them and mortgaged to the plaintiff. It is the plaintiff’s theory that it is entitled to the net proceeds of the settlement because the value of its lien was reduced as a result of the damage to its security property. The defendants assert that the plaintiff’s rights are purely contractual and that the…