In re Jackson, Bankruptcy No. 92 B 1591.
| Decision Date | 16 March 1994 |
| Docket Number | Bankruptcy No. 92 B 1591. |
| Citation | 173 BR 637 |
| Parties | In re Lucille JACKSON, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Marshall A. Levin, Chicago, IL, for debtor.
Burton A. Brown, Chicago, IL, for Midwest Real Estate Inv. Co.
Jack McCullough, Chapter 13 Trustee, Chicago, IL.
This matter is before the court on the motions of Lucille Jackson, the debtor, to enforce the automatic stay and for sanctions and the motions of Midwest Real Estate Investment Company Partnership to lift the automatic stay and objecting to a claim filed on its behalf by the Debtor.1 For the reasons stated below, the court grants the Debtor's motion to enforce the automatic stay, denies the Debtor's motion for sanctions, denies Midwest's motion to lift the automatic stay, and continues Midwest's motion objecting to claim until a further date.
On January 24, 1989, Midwest Real Estate Investment Company Partnership ("Midwest") purchased the property located at 7826 South Ingleside in Chicago, Illinois for the delinquent taxes and (presumably) received a Certificate of Purchase.3 Pursuant to Illinois law, the Debtor had a right to recover the property by redeeming it by paying the taxes plus certain penalties and interest. See 35 ILCS 205/253(b)(2). The last day to redeem was January 24, 1992.4 The Debtor did not attempt to extend the period of redemption or to pay off the taxes before January 24, 1992 nor has she done so anytime thereafter. On September 30, 1991, Midwest filed a petition for a tax deed with the County Clerk of Cook County. See 35 ILCS 205/266.
On January 24, 1992, the Debtor filed for relief under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § 1301, et seq. In her bankruptcy schedule filed with the court, the Debtor listed the property located at 7826 South Ingleside as an asset of the estate. On March 23, 1992, a hearing was held in the Circuit Court of Cook County on Midwest's petition for a tax deed and on April 8, 1992, Judge Eugene L. Wachowski issued a tax deed to Midwest (case number 91 CoTd 3661). See 35 ILCS 205/266. Midwest promptly recorded its deed in Cook County. The Debtor filed her emergency motion to enforce the automatic stay on April 15, 1993. On April 29, 1993, the Debtor filed a proof of claim on behalf of Midwest in the amount of $2,274. Midwest filed its motion to modify the stay on August 17, 1993. The Debtor then filed her reply to Midwest's motion to lift the automatic stay and also filed a motion for sanctions on August 18, 1993. Finally, on September 17, 1993, Midwest filed an objection to the claim the Debtor had filed on Midwest's behalf.
The Debtor claims that Midwest's April 8, 1992 tax deed is void because Midwest proceeded in state court in violation of the automatic stay imposed by 11 U.S.C. § 362(a) on creditor collection actions after the filing of a bankruptcy petition without first obtaining leave of the bankruptcy court. The Debtor further argues that because Midwest failed to obtain and record a valid tax deed within one year following the expiration of the period of redemption as required by 35 ILCS 205/271, Midwest's certificate and sale on which it is based is null and void. Consequently, the Debtor contends that she is the owner of the property in question. Alternatively, the Debtor argues that Midwest should not be allowed to lift the automatic stay because it is a secured creditor in this case and its interest in the Debtor's property is adequately protected by virtue of the Debtor's significant equity in the property.
Midwest, on the other hand, argues that all of the Debtor's rights in the property were extinguished by operation of Illinois law upon the expiration of the period of redemption and therefore seeks an order lifting the automatic stay to allow it to exercise its ownership interests in the property to evict the Debtor and obtain possession of the property. Further, Midwest denies that it is a creditor of the estate and objects to a filing of a claim by the Debtor on behalf of Midwest. Finally, Midwest contends that the Debtor's argument is barred by the doctrine of laches.
This court has jurisdiction over this matter under 28 U.S.C. § 1334(b) as a matter arising under § 362 of the Bankruptcy Code. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G) as a motion to terminate, annul or modify the automatic stay. This proceeding is before the court pursuant to Local Rule 2.33 of the United States District Court for the Northern District of Illinois automatically referring bankruptcy cases and proceedings to this court for hearing and determination.
Bankruptcy Code § 108(b) provides:
(b) Except as provided in subsection (a) of this section, if applicable law, an order entered in a proceeding, or an agreement fixes a period within which the debtor or an individual protected under section 1301 of this title may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may file, cure, or perform, as the case may be, before the later of — (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; and (2) 60 days after the order for relief.
11 U.S.C. § 108(b). The law in this Circuit is clear that "when a petition in bankruptcy is filed before the expiration of the applicable state redemption period, § 108(b) extends the redemption period for at least 60 days from the commencement of bankruptcy proceedings." In re Tynan, 773 F.2d 177, 179 (7th Cir.1985). In addition, the Tynan court also ruled that § 362 of the Bankruptcy Code, the automatic stay, does not toll the running of a state law redemption period. Id. at 179-80.
The resolution of the instant dispute is controlled by Tynan. Because the Debtor filed her petition for bankruptcy on the same day the statutory redemption period was to expire, i.e., before the state law redemption period expired, she benefitted from § 108(b) by having her Illinois statutory right of redemption extended for 60 days "after the order of relief," i.e., 60 days after the filing of the Chapter 13 petition. See § 301. Therefore, in this proceeding, the 60-day extension period actually expired on March 24, 1992.5 During that period, neither the Debtor nor the Chapter 13 trustee redeemed the property. However, during this period (on March 23, 1992), Midwest did go into state court as required by 35 ILCS 205/264, to present evidence and testimony to the state court in an attempt to prove that it complied with the statutory requirements for obtaining a tax deed. The state court heard the evidence and granted Midwest's request for a tax deed on April 8, 1992. Midwest decided to proceed as if the bankruptcy case in general, and the automatic stay in particular, simply did not exist or somehow did not apply to Midwest.6
The automatic stay of § 362(a) is one of the most basic protections afforded a debtor by the Bankruptcy Code. In re Garcia, 109 B.R. 335, 337 n. 3 (N.D.Ill.1989) citing 1978 U.S.Code Cong. & Admin.News 6296-97. By stopping all collection efforts by creditors against the debtor and/or the debtor's property, it gives the debtor a "breathing spell" from creditor pressure. Id.; see also §§ 362(a), (c). The automatic stay gives the debtor time to attempt repayment or reorganization or to obtain a discharge from debts in a Chapter 7 liquidation. The stay also protects creditors by ending the race to the courthouse and the piecemeal liquidation of the debtor's estate in favor of the fair and equal treatment of creditors. See e.g., In re Litchfield Company of South Carolina Limited Partnership, 135 B.R. 797 (W.D.N.C.1992). Thus, the injunction on creditor collection efforts imposed by the stay is so crucial to the bankruptcy process that "acts in violation of the automatic stay . . . are void ab initio." See e.g., In re Schwartz, 954 F.2d 569, 574 (9th Cir.1992); Maritime Electric Co. v. United Jersey Bank, 959 F.2d 1194 (3d Cir.1991); In re Calder, 907 F.2d 953, 956 (10th Cir.1990); In re Smith, 876 F.2d 524, 525-26 (6th Cir. 1989); In re 48th Street Steakhouse, 835 F.2d 427, 431 (2d Cir.1987), cert. denied, 485 U.S. 1035, 108 S.Ct. 1596, 99 L.Ed.2d 910 (1988); In re Young, 14 B.R. 809, 811 (Bankr.N.D.Ill. 1981).
Midwest's actions were in clear violation of the automatic stay. See § 362(a)(2), (3), (4) & (5). Upon completion of the tax sale and payment, Midwest was issued a Certificate of Purchase. The Certificate of Purchase is a species of personal property which is "readily transferable by endorsement and which evidences a valid lien against the property." McKeever v. McClandon, 132 B.R. at 1006; citing City of Chicago v. City Realty Exchange, 127 Ill.App.2d 185, 262 N.E.2d 230 (1st Dist.1970). However, the Certificate of Purchase "does not operate to transfer any title, legal or equitable, to the tax purchaser." Id. citing Illinois Railway Museum v. Siegel, 132 Ill.App.2d 77, 266 N.E.2d 724 (2d Dist.1971); see also In re Young, 14 B.R. at 812. The Certificate does not transfer legal title until the redemption period has expired. McKeever, 132 B.R. at 1006; see also In re Moreau, 147 B.R. 441 (Bankr.N.D.Ill.1992) (); but see In re Allegheny International Credit Corporation, 128 B.R. 125, 128 (W.D.Penn.1991) ().
Thus, neither the tax sale nor the issuance of a Certificate of Purchase transferred property to Midwest. Instead, it merely transferred the tax collector's claim against that property. In re Young, 14 B.R. at 812. The property...
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