A Chicago federal appeals panel has confirmed, for the third time, that bankruptcy judges can't let debtors use bankruptcy court to avoid paying traffic and parking fines.
"This is the third — and we hope final — decision," said Circuit Judge Frank Easterbrook, of the U.S. Court of Appeals for the Seventh Circuit.
Easterbrook recently penned an opinion that favored the city of Chicago over two Chicago women — identified as Lucinda E. Davis and Kiera S. Cherry — who filed for Chapter 13 bankruptcy, but contended payment of their city-owed vehicle-related fines were blocked by their bankruptcy status. Easterbrook was joined in his ruling by Circuit Judges Ilana Rovner and David Hamilton.
The Seventh Circuit had twice before addressed the issue, involving a different bankruptcy case, in 2019. Both times the appellate judges ruled payment of fines cannot be skirted or delayed. In the recent decision, Easterbrook said the only exception is when a bankruptcy judge finds solid reason to keep vehicles protected in the estate.
"A bankruptcy court may confirm a [bankruptcy] plan that holds property in the estate only after finding good case-specific reasons for that action. Because the bankruptcy court approved these plans without finding that such reasons exist, its orders are reversed," Easterbrook ruled.
Easterbrook added: "A desire to obtain free parking, or otherwise get the benefit of a car without satisfying all ongoing expenses of driving, is not a good reason."
Under bankruptcy law, fines are "administrative expenses" bankruptcy estates must pay, according to Easterbrook.
"Even with the fines classified as administrative expenses," the city must rely on the estate to remit the money, because the city doesn't have access to enforcement measures such as impoundment, Easterbrook noted.
Easterbrook pointed out a person in bankruptcy may keep their vehicle, but they also have to satisfy the duties of ownership.
"Debtors may need cars but also must pay the cost of their maintenance — insurance, repairs, gasoline, and parking, among other things. Using the bankruptcy process to enable debtors to operate cars while avoiding the costs that others must pay is not appropriate," Easterbrook observed.
Easterbrook continued, saying, "Whether a car’s title returns to the owner on confirmation of the [bankruptcy] plan or remains in the estate, vehicular fines must be paid."
Cherry is represented by Semrad Law Firm of Chicago.
Davis is represented by Geraci Law of Chicago.
Chicago and bankruptcy trustees are represented by Chicago corporate counsel, U.S. Department of Justice lawyers and the Washington, D.C. firm of WilmerHale, as well as by Jonathan Seymour, a visiting assistant professor of law at Duke University.