Editor's note: This article has been revised to correct an error incorrectly identifying the author of the appellate opinion referenced.
A federal appeals panel has again weighed in on the long running legal debate over whether people with potentially thousands of dollars in unpaid tickets and fees can use bankruptcy protection to keep the city of Chicago from keeping their vehicle.
A three-judge panel of the U.S. Seventh Circuit Court of Appeals issued an opinion April 21 on the city’s appeal.
U.S. Seventh Circuit Court of Appeals Judge Diane S. Sykes
| en.wikipedia.org
Seventh Circuit Judge David Hamilton wrote the opinion, which he called “a new chapter” in the city’s effort to collect on parking fines and moving violations. Judges Michael Kanne and Diane Sykes concurred.
The city has a process for impounding vehicles when owners have unpaid tickets, imposing liens claiming possession of the vehicles. Hamilton said the city argued its possessory liens are established by law and therefore cannot be voided through a Chapter 13 process. But attorneys for Marcella Mance, who owns a car targeted by a city lien over unpaid tickets, argued the possessory lien is instead court-ordered, or judicial in nature, and not statutory, and bankruptcy protection can allow debtors to avoid court-ordered financial penalties.
“This case may appear to be a technical dispute with modest stakes, but it’s a test case that is important to the city and will affect many drivers,” Hamilton wrote.
Earlier Seventh Circuit opinions resulted in wins for the city on the issue of whether people in bankruptcy still must pay off tickets for parking, traffic and red-light violations. Hamilton said the city, which issues about 3 million citations annually, is owed more than $1.8 billion in unpaid tickets. In 2016, citation revenue accounted for 7 percent of the city’s operating budget.
“Many drivers cannot afford to pay their outstanding tickets and fees, let alone the liens imposed on their cars,” Hamilton wrote. “Mance, for instance, incurred several unpaid parking tickets and saw her car impounded and subject to a possessory lien that totaled $12,245, more than four times her car’s value.”
Both the bankruptcy court and Judge Wood determined the city’s lien was inextricably tied to parking tickets and other infractions — matters that had to be adjudicated — and did not come directly from a statute. For contrast, the panel highlighted mechanics’ liens, which do not require a judge and are automatically trigged once a property owner fails to make payment. On the other end of the spectrum are court-ordered money judgments, which only arise after a legal proceeding ends in the favor of a creditor.
“Chicago’s impoundment lien in this case lies somewhere in between these easy illustrations,” Hamilton wrote. “We find decisive the substantial quasi-judicial proceedings needed for the city to obtain an impoundment lien. The city’s possessory lien thus did not arise ‘solely’ by statute.”
The city can only impound cars if an owner amasses three “final determinations of liability,” or two outstanding for more than a year, and the underlying violations have to go through an administrative process before becoming a final determination. This includes a police officer or other municipal official observing the infraction and giving notice by issuing a citation. The vehicle owner can contest the charge, but if they lose or fail to challenge, a liability determination is entered. Then the owner can appeal under the Administrative Review Law. If they lose or fail to appeal, the determination is final. Impoundment requires further legal proceedings.
The panel pointed to a 2021 Seventh Circuit opinion in Chicago v. Fulton that established those final determinations are money judgments. Although the final step of the possession lien is automatic, attached during impoundment without a court action, “we do not think we can ignore all the prior legal process that must occur before the city’s possessory lien arises,” Hamilton wrote.
At oral arguments, Mance acknowledged some impounded vehicles can be subject to statutory liens, such as those towed for parking in a fire lane. But the panel agreed those immediate actions without judicial procedures are distinct from cars seized strictly for unpaid tickets. The panel also rejected the city’s argument that agreeing with the earlier rulings would raise questions about the classification of tax liens.
“Tax liens are unquestionably statutory,” Hamilton wrote, pointing to the Bankruptcy Code’s legislative history, but adding “Congress is entitled to single out a particular category of liens and classify it accordingly. We do not disturb that prerogative or conclusion with this opinion.”
Mance has been represented by attorneys Daniel P. Lindsey and David S. Yen, of Legal Aid Chicago.
The city of Chicago has been represented by attorneys from the city's Department of Law.