The City of Chicago won a skirmish in the ongoing battle to determine whether debtors can use chapter 13 to recover possession of their impounded cars automatically without paying outstanding parking fines.
Even the bankruptcy judges in Chicago are undecided about who comes out on top. Here’s how the battle has progressed:
When owners don’t pay parking fines, the city eventually boots and impounds the vehicles. Owners cannot regain possession without paying the fines, towing charges and storage fees. Employing Seventh Circuit authority in Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009), to the effect that inaction is a violation of the automatic stay, bankruptcy courts held that owners were entitled to immediate possession of their cars on filing chapter 13 petitions.
Chicago responded by importuning the Illinois legislature to amend the statute by giving the city possessory liens on impounded cars. Chicago bankruptcy judges then split on the result. Some held that the owners were still entitled to repossession, while others held they were not. For ABI’s discussion of one recent case in bankruptcy court, click here for an opinion where Bankruptcy Judge Jack B. Schmetterer rejected the conclusion of another judge and held that the possessory lien did not change the result in favor of debtors.
Now come two debtors who proposed plans that would pay parking fines as unsecured claims. When the city refused to turn over the cars, they sued the city, alleging that the Bankruptcy Code’s fresh start amounted to implied preemption of the Illinois statute. Without opposition from the debtors, District Judge Robert M. Dow, Jr. of Chicago withdrew the reference to rule on the city’s motions to dismiss.
In an opinion on March 22, Judge Dow granted the dismissal motions, ruling that the complaints failed to state a claim because nothing in the Bankruptcy Code preempted the state statute at issue. Judge Dow was careful to say that his opinion did not touch the question of whether chapter 13 debtors were entitled to possession on filing. He said he was answering a question about “preemption, not possession.”
Judge Dow said that the case involved so-called conflict preemption, one of the three versions of the doctrine where federal law preempts state law. Conflict preemption kicks in if it is impossible to comply with both state and federal law or when state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” in the words of the Supreme Court.
Judge Dow ruled that conflict preemption did not apply because there is no “‘Bankruptcy Code embodiment of the fresh start principle that permits or requires avoidance of the lien,’” citing Eleventh Circuit authority. The debtors’ theory, he said “squarely conflicts” with the principle of bankruptcy law, extant for more than 100 years, that a lien passes through bankruptcy unaffected.
The City of Chicago won a skirmish in the ongoing battle to determine whether debtors can use chapter 13 to recover possession of their impounded cars automatically without paying outstanding parking fines.