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Finding the city of Chicago’s seizure of people’s cars over unpaid parking tickets amounts to little more than a program to boost the city’s treasury, a federal appeals court has rejected City Hall’s bid to keep a hold on seized vehicles even after bankruptcy judges have ordered the city to return them.
On June 19, a three-judge panel of the U.S. Seventh Circuit Court of Appeals upheld the rulings of several federal bankruptcy court judges, who had ruled the city could not “ignore the Bankruptcy Code” and “continue to hold a debtor’s vehicle until the debtor pays her outstanding parking tickets.”
“This just means the City needs to satisfy the debts owed to it through the bankruptcy process, as do all other creditors,” the appellate judges wrote.
Seventh Circuit Judge Joel Flaum
The decision was authored by Seventh Circuit Judge Joel M. Flaum. Circuit Judges Michael S. Kanne and Michael Y. Scudder concurred.
The decision comes about a month since attorneys for the city squared off before the Seventh Circuit panel against lawyers for four people who had had their vehicles seized by the city.
Each of the people had filed for Chapter 13 bankruptcy protection after the city had taken their vehicles, asserting they owed unpaid parking tickets or had been cited for other vehicle-related violations of city ordinances.
In each case, those in bankruptcy protection had secured orders from federal bankruptcy judges, including from Carol Doyle, chief bankruptcy judge of the U.S. District Court for the Northern District of Illinois, ordering the city to return the vehicles. The judges further imposed sanctions against the city of $100 for each day after the city refused to abide by the order.
The Seventh Circuit opinion notes the city eventually returned the vehicles to each of the individuals.
However, the opinion also noted the city at no point attempted to use the bankruptcy process to perfect its claim on the unpaid tickets or other debts the vehicle owners may have owed the city.
Rather, the city appealed the rulings collectively to the Seventh Circuit, asserting its police powers grant it an exception to the “automatic stay” granted to debtors under federal bankruptcy law, which generally slaps a hold on collection actions during the bankruptcy proceedings. That stay has been interpreted by federal courts to also require creditors who have seized a vehicle to return it to debtors going through bankruptcy.
The Seventh Circuit most recently declared this to be the law in its 2009 decision in Thompson v General Motors Acceptance Corp.
The city in 2016 passed an ordinance granting it the power to impound and hold vehicles owned by people the city deemed owed it too much money in unpaid fines and fees.
For the four debtors at the heart of the case – identified as Robbin Fulton, Timothy Shannon, George Peake and Jason Howard - that amounted to $5,600-$13,000 in unpaid tickets and fees, including the city’s assessed impound fees.
The city argued, because it is a government with law enforcement powers, it should not be treated the same as other creditors, and should be able to hold the vehicles, regardless of the Bankruptcy Code’s automatic stay rule.
Further, the city said, if the court ordered it to return the vehicles before the unpaid fines are paid, it would be “helpless to prevent the loss or destruction of the vehicles,” and would lose its ability to collect the fees it is owed by law.
The Seventh Circuit judges, however, said the city’s argument failed.
The judges said the city always had the right under the Bankruptcy Code to ask the judge in a bankruptcy proceeding to secure, “on an expedited basis,” often “within a day or so,” its claim on the unpaid debt. The judges noted the city did not do so in any of these cases.
“It will be the rare occasion where a single day’s delay will have lost the City the value of its security,” Judge Flaum wrote.
“Regardless, the Code is clear that it is the creditor’s obligation to come to court and ask for protection, not, as the City advocates, the debtor’s obligation to file an adversary proceeding against every creditor holding her property at the time she files for bankruptcy.”
The judges also discounted the city’s claims debtors will simply file bankruptcy to get their cars back, and then withdraw their bankruptcy petitions. In such a circumstance, the judges said, the city could file “bad faith” motions, and could ask the court to “sanction the debtor.” The judges pointed to cases in which bankruptcy judges have sanctioned bankruptcy petitioners who used proceedings as a way merely to forestall foreclosure on their homes.
And the judges scrapped the city’s claims under its police powers, saying seizing vehicles for unpaid parking tickets has little to do with law enforcement’s charge to protect the public.
The judges noted the city had already secured judgments against the vehicle owners through its administrative law process, which the city could enforce through Cook County circuit court – a process the city sought to “short-circuit” by holding onto debtors’ seized vehicles.
“We are persuaded that, on balance, this is an exercise of revenue collection more so than police power,” Flaum wrote. “… The kinds of violations the City enforces are not traditional police power regulations; these fines are for parking tickets, failure to display a City tax sticker, and minor moving violations.
“… The City’s focus is on the financial liability of vehicle owners, not on public safety.”