7th Circuit Reverses Bankruptcy Courts’ Uniform Rule to Keep Debtor’s Vehicle in Chapter 13 Post-Confirmation Estate

Posted by NCBRC - March 15, 2019

This opinion was based on the consolidated appeals of seven cases. Each of the seven debtors filed a petition for bankruptcy under Chapter 13 of the Bankruptcy Code in the Bankruptcy Court for the Northern District of Illinois. The uniform confirmation order in this district (in most cases) is that upon confirmation, the property of the estate remains property of the estate. City of Chi. v. Marshall, 281 F. Supp. 3d 702, 704 (N.D. Ill. 2017).

Thereafter, the debtors incurred fines as the registered owners of vehicles involved in parking or traffic violations of Chicago’s Municipal Code. In each bankruptcy case, the City of Chicaco sought payment of the outstanding post-petition traffic fines as administrative expenses pursuant to § 503 of the Bankruptcy Code, which, pursuant to § 507(a), would give these claims priority status (second only to domestic support obligations), ahead of pre-petition creditors in the distribution of the assets of the bankruptcy estates. Id.

Six of the seven cases were heard before Bankruptcy Judge Barnes. Judge Barnes oral ruling rejected Chicago’s argument. “He found that the City’s attempt to collect post-petition fines as administrative expenses had “a dangerous irritative effect, which is that the debtor could continue even after the first administrative expense claim for the life of the plan to incur additional tickets and they could be added to the plan,” depleting the assets available to unsecured creditors. (Citation omitted.) Judge Barnes concluded that “the traditional set of circumstances holds true, which is the debtor remains responsible for these claims,” and that the City had the same collections options as any post-petition creditor: it could move for relief from the stay and pursue state court remedies, or it could seek dismissal of the bankruptcy case. (Citation omitted.)” Id. at 705.

The seventh case was heard by Judge Hollis. She also rejected Chicago’s argument in a written opinion, In re Haynes, 569 B.R. 733 (Bankr. N.D. Ill. 2017), finding that post-petition traffic tickets did not qualify as administrative expenses.

These cases were consolidated on appeal to the District Court for the Northern District of Illinois which affirmed the Bankruptcy Courts’ decisions. City of Chi. v. Marshall, 281 F. Supp. 3d 702 (N.D. Ill. 2017).

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