The City of Chicago failed in its latest attempt at confiscating cars of chapter 13 debtors to collect post-petition parking fines.
In a Nov. 27 opinion, District Judge Elaine E. Bucklo upheld seven decisions by two Chicago bankruptcy judges, concluding that the city could not assert administrative priority claims for post-petition parking fines. In significant part, the outcome resulted from language in the chapter 13 plans providing that property of the estate would not revest in the debtors at confirmation, as Section 1327(b) would otherwise provide.
Absent bankruptcy, the city ordinarily would immobilize, tow and ultimately sell cars whose owners had not paid parking fines. The city complained that chapter 13 debtors were using their bankrupt status to flaunt parking regulations and escape liability for parking fines.
The city admitted that the automatic stay prevented towing and selling the offending cars, because the autos remained estate property under the chapter 13 plans. Since the cars remained estate property for the duration of the chapter 13 cases, the city contended it should be have allowed administrative claims under Section 503, giving the city priority in distribution over general unsecured creditors pursuant to Section 507(a)(2).
For several reasons, Judge Bucklo concluded that the city was not entitled to priority claims for the post-petition tickets.
Both sides relied on Reading Co. v. Brown, 391 U.S. 471 (1968), where the Supreme Court ruled that an involuntary tort claim held by a creditor who was a victim of the debtor’s negligence was entitled to an administrative priority under the former Chapter XI as a matter of “fairness to all persons having claims against an insolvent.”
Judge Bucklo cited the Seventh Circuit as interpreting Reading to prevent operating businesses in chapter 11 from having a competitive advantage by escaping liability for torts. She said that Chicago failed the second test under Reading: Does “fundamental fairness” weigh in favor of allowing an administrative claim?
Although appellate courts in other contexts have given administrative status to involuntary creditors for fines, penalties, and torts based on Reading, Judge Bucklo said that none arise in chapter 13, where there is a “common-sense distinction between individuals and business entities: individuals do not exist for the sole purpose of making money for stakeholders.” Therefore, not every act a chapter 13 debtor takes “can reasonably be construed as a ‘cost of doing business’ that must in fairness be borne by her pre-petition creditors.”
“Fundamental fairness,” Judge Bucklo said, will not allow administrative claims because the city retains the ability to collect parking fines outside of bankruptcy by obtaining a modification of the automatic stay, seeking dismissal, or waiting until completion of the chapter 13 case. The creditors, on the other hand, would have their recoveries reduced were the city granted administrative claims.
Judge Bucklo also rejected the city’s argument based on 28 U.S.C. § 959(b), since the lack of priority status would not give individuals a competitive advantage.