Auto owners in Chicago sustained a defeat when the Supreme Court held on January 14 that refusing to turn over an impounded car does not violate the automatic stay in Section 362(a)(3). Consequently, filing a chapter 13 petition by itself doesn’t compel the city to turn over a car impounded for unpaid parking fines. See City of Chicago v. Fulton, 19-357, 2021 BL 12454, 2021 Us Lexis 496, 2021 WL 125106 (Sup. Ct. Jan. 14, 2021).
Auto owners won a consolation prize on January 29 when the district court upheld two bankruptcy judges by ruling that debtors can set aside judicial liens on their impounded cars as impairments on their exemptions under Section 522(f)(1).
Two individuals filed chapter 7 petitions in Chicago. One owned a car worth $575 that had $8,000 in unpaid parking fines. The other had a $3,000 car with $12,000 in parking and moving traffic fines. The debtors claimed exemptions covering part or all of their cars. They filed motions to avoid judicial liens under Section 522(f)(1) as an impairment on their exemptions.
The city argued that the liens were statutory liens that the debtors could not avoid. Bankruptcy Judges LaShonda A. Hunt and Jacqueline P. Cox ruled in favor of the debtors and avoided the liens. The city appealed.
District Judge Andrea R. Wood decided that the liens indeed were judicial. She therefore ruled in favor of the debtors and upheld avoidance of the liens.
The outcome turned on Section 522(f)(1) and the definitions of judicial and statutory liens.
Section 522(f)(1) permits a debtor to “avoid the fixing of . . . a judicial lien” that impairs an exemption. Section 101(36) defines a judicial lien as a “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
Section 101(53) defines a statutory lien as a “lien arising solely by force of a statute on specified circumstances or conditions, . . . whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.”
The outcome also turned on the state statutes and local laws enabling the city to obtain liens.
Illinois law permits cities to enact ordinances for administrative adjudication of parking violations. Chicago’s local law provides that parking fines are civil offenses “punishable by fines.” On being given notice of a violation, the owner may object and appeal if the finding is adverse. When the determination is final in the course of administrative proceedings, a debt becomes due and owing to the city in the form of a money judgment.
When someone racks up three or more judgments, the city gives notice that the car may be impounded. If the owner defaults or loses at a hearing, the city may then boot and tow the car. On immobilizing the car, the city has a possessory lien.
The city conceded that the final determinations of liability resulted from administrative proceedings but argued that the liens were not “obtained by” the proceedings that gave rise to liability.
Judge Wood disagreed. She said “it is enough that the City’s ability to immobilize a vehicle and thus obtain a lien is dependent on prior judicial action. Put differently, because the lien is based on the combined effect of a certain number of judgments, it is obtained by those judgments.”
Judge Wood buttressed her conclusion by reference to the definition of a statutory lien, which arises “solely by force of a statute on specified circumstances or conditions” and does not include a judicial lien even if the “lien is provided by or is dependent on a statute.”
“[T]he liens here do not arise solely by force of a statute,” Judge Wood said. She upheld the avoidance of the liens because they arose “by force of the underlying final liability determinations resulting from administrative adjudications.”
Auto owners in Chicago sustained a defeat when the Supreme Court held on January 14 that refusing to turn over an impounded car does not violate the automatic stay in Section 362(a)(3). Consequently, filing a chapter 13 petition by itself doesn’t compel the city to turn over a car impounded for unpaid parking fines. See City of Chicago v. Fulton, 19-357, 2021 BL 12454, 2021 Us Lexis 496, 2021 WL 125106 (Sup. Ct. Jan. 14, 2021).
Auto owners won a consolation prize on January 29 when the district court upheld two bankruptcy judges by ruling that debtors can set aside judicial liens on their impounded cars as impairments on their exemptions under Section 522(f)(1).
Two individuals filed chapter 7 petitions in Chicago. One owned a car worth $575 that had $8,000 in unpaid parking fines. The other had a $3,000 car with $12,000 in parking and moving traffic fines. The debtors claimed exemptions covering part or all of their cars. They filed motions to avoid judicial liens under Section 522(f)(1) as an impairment on their exemptions.
The city argued that the liens were statutory liens that the debtors could not avoid. Bankruptcy Judges LaShonda A. Hunt and Jacqueline P. Cox ruled in favor of the debtors and avoided the liens. The city appealed.