In re Ryan
| Decision Date | 02 June 1989 |
| Docket Number | Bankruptcy No. 84 B 11616. |
| Citation | 100 BR 411 |
| Parties | In re James Clare RYAN and Sandra Marie Ryan a/k/a Sandra Marie Hooker, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Howard Joelson, Olympia Fields, Ill., for debtors.
Pamela Buchholz of Teller, Levit & Silvertrust, P.C., Chicago, Ill., for Woodhaven Ass'n.
Thomas Raleigh, Chicago, Ill., trustee.
This matter comes before the Court on the Debtor's Petition for Certification of Contempt against the Woodhaven Association for an alleged violation of the automatic stay provision of the Bankruptcy Code.
This is a core proceeding over which the Court has jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(I). For the reasons set forth below, the Court finds that Woodhaven has not violated the permanent injunction of § 524(a) of the Bankruptcy Code, and is not in contempt of court. The following constitutes the Court's findings of fact and conclusions of law, pursuant to Bankruptcy Rule 7052.
On August 31, 1977, JAMES CLARE RYAN and SANDRA MARIE RYAN Debtors purchased a condominium property, a vacation camping lot in Woodhaven Lakes. Woodhaven Lakes is a campsite development owned by the WOODHAVEN ASSOCIATION, INC. Woodhaven. The rights, responsibilities and obligations of the unit owners in the association are set forth in the Illinois Condominium Property Act, Ill.Rev.Stat., ch. 30, ¶¶ 301 et seq. (1987) Condominium Act and the Declaration of Covenants Declaration.1 The Condominium Act and the Declaration authorize the Board of Managers of Woodhaven to levy annual assessments against the campsites. These annual fees are levied on March 31 of each year.
On September 18, 1984, the Debtors filed a joint Chapter 7 petition under the United States Bankruptcy Code Code. At some point prior to filing this case, the Debtors gave up possession of the property.2 The Debtors listed the condominium property as an asset and included as a debt in their A-3 Schedule, Woodhaven's claim for assessment fees from 1982 through 1984 ($1,875.00). On November 6, 1984 the Trustee filed a no-asset report, which was approved by the Court on November 7, 1984. On May 16, 1985, the Court entered an order discharging the Debtors from all debts dischargeable in the Chapter 7 case. And, on August 30, 1985, the case was closed.3
It is undisputed that at all relevant times, Woodhaven was aware of the Debtors' Chapter 7 bankruptcy petition and their eventual discharge. On September 21, 1987, Woodhaven brought suit against the Debtors in state court for breach of contract, allegedly seeking to collect assessments for the period after the filing of the Chapter 7 case and attorney's fees, in the sum of $1,379.00. On October 21, 1987, Woodhaven obtained a default judgment against the Debtors for said amount.
On December 31, 1987, the Debtors filed a "Petition for Certification of Contempt" against Woodhaven. The Debtors ask the Court to hold Woodhaven in contempt for obtaining the judgment in violation of the automatic stay.
As a preliminary matter, the Court must clarify the procedural posture of this case. The Debtors cite the automatic stay as authority for their petition. See, 11 U.S.C. § 362. The automatic stay bars creditors from attempting to collect prepetition debts, in order to give the debtor a more effective "fresh start." In re Smurzynski, 72 B.R. 368 (N.D.Ill.1987). But the protection afforded by the automatic stay is only temporary and expires: (1) at the time the case is closed, § 362(c)(2)(A); (2) at the time the case is dismissed, § 362(c)(2)(B), or (3) upon the entry or denial of a discharge, § 362(c)(2)(C). In this case, the state court suit was commenced after the Debtors' discharge. Thus, the automatic stay was inapplicable. The Debtors' motion, however, does allege a violation of the permanent injunction of 11 U.S.C. § 524(a).4 That section prohibits creditors holding discharged debts from commencing an action to collect that debt. Accordingly, the Court will analyze this proceeding pursuant to § 524(a) of the Code, rather than § 362.
For purposes of this case, the permanent injunction of § 524(a) prohibits creditors of these Debtors from attempting to collect on or to assert personal liability for any debt discharged pursuant to § 727 of the Bankruptcy Code. Subparagraph (b) of § 727 provides in pertinent part:
Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter, and any liability on a claim that is determined under section 502 of this title as if such claim had arisen before the commencement of the case. (emphasis added)
Woodhaven concedes the fact that the prepetition assessments have been discharged. But Woodhaven does dispute the Debtors' characterization of the postpetition assessments as a discharged prepetition debt.
The Debtors contend that their liability for the postpetition assessments debt was a contingent and unliquidated claim at the time they filed their Chapter 7 case, which was included in their A-3 schedule and discharged by the Court.5
Woodhaven, on the other hand, asserts that the debt was not a discharged prepetition debt because the debt did not arise until postpetition assessments were made by the Board of Managers. Therefore, according to Woodhaven, it is a postpetition debt for which the Debtors remain personally liable.
Condominium ownership in Illinois is expressly authorized and regulated by the Condominium Act. The Condominium Act does not define the term "condominium unit." Case law, however, defines a condominium unit as an "estate in real property consisting of an undivided interest in a portion of a parcel of real property together with a separate fee simple interest in another portion of the same parcel." Giannini v. First Nat. Bank of Des Plaines, 136 Ill.App.3d 971, 980, 91 Ill.Dec. 438, 483 N.E.2d 924 (1985) (quoting Dutcher v. Owens, 647 S.W.2d 948, 949 (Tex.S.Ct.1983)). The Condominium Act provides that it is the duty of every unit owner to pay his proportionate share of the common expenses of the association. See, Ill.Rev. Stat., ch. 30 § 309(a). A unit owner's failure to pay the assessment gives rise to an automatic lien upon the unit, in favor of the condominium association, for the unpaid assessment plus costs. See, Ill.Rev.Stat., ch. 30 § 309(g)(1). The association may bring a forcible entry and detainer action for possession against a unit owner who has failed to pay the assessment. See, Ill.Rev. Stat., ch. 30 § 309(g)(2). Moreover, after a notice of lien is recorded, the association may bring a foreclosure action and the unit may be foreclosed in the same manner as a mortgage.6 Ill.Rev.Stat., ch. 30 § 309(h). Woodhaven's Declaration mirrors the provisions of the Condominium Act.
The issue before the Court is whether the obligation to pay postpetition condominium assessments arising from a prepetition condominium agreement, constitutes a contingent debt discharged in the Chapter 7 proceeding. Courts addressing this issue have reached contrary conclusions.
One line of authority, represented by Berens v. Woodhaven Ass'n, 87 B.R. 971 (N.D.Ill.1988) aff'd 1989 WL 47409, U.S. Dist.Lexis 2298 (N.D.Ill.Dec. Mar. 7, 1989) holds that condominium assessments that accrue postpetition but arise out of a prepetition contract are prepetition debts, discharged in the Chapter 7 proceeding. Accord In re Elias, 98 B.R. 332 (N.D. Ill.1989). The primary rationale underlying this view is that while the postpetition assessment could not have been levied at the time the Chapter 7 case was filed, the debtor's obligation to pay postpetition assessments was a contingent prepetition debt which was extinguished upon the Chapter 7 discharge. The courts find that this view furthers the Code's "fresh start" policy.
The contrary position, as articulated by In re Horton, 87 B.R. 650 (Colo.1987) states that because the condominium association does not have a claim until the assessment is levied, an assessment levied postpetition constitutes a postpetition debt for which the debtors remain personally liable. Accord In re Rosteck, 95 B.R. 558 (N.D.Ill.1988); Rink v. Timber Ass'n, Inc., 87 B.R. 653 (Colo.1987); see also In re Strelsky, 46 B.R. 178 (E.D.Va.1985). Courts adopting this view conclude that the debtor continues to remain personally liable for the assessment until he/she is divested of title.
This Court, after considering the aforementioned authorities, respectfully declines to follow Horton and its siblings. The Court is of the opinion that Behrens and Elias represent the better reasoned approach.
A "debt" is defined as "liability on a claim." 11 U.S.C. § 101(11). A "claim", in turn, is broadly defined as any right to payment .. 11 U.S.C. § 101(4). As the Elias court observed, "the definitions are simply ways of describing the same thing." A "claim" from the creditor's perspective is a `debt' from the debtor's." In re Elias, supra at 334. The legislative history of § 101(4) demonstrates that Congress intended the broadest possible definition for the term "claim" so that all of the debtor's legal obligations, no matter how remote or contingent, can be dealt with in the bankruptcy case. In re Johns-Manville Corp., 57 B.R. 680, 687 (S.D.N.Y.1986).7 As noted in In re Black, 70 B.R. 645, 649 (Utah 1986):
The expanded concept of "claim" under the Bankruptcy Code was designed to accord to the debtor the "broadest possible relief in the bankruptcy court." That relief includes the ability to discharge a broader spectrum of the debtor\'s outstanding obligations. A more realistic "fresh start" is likewise effectuated by the broader definition.
Horton's interpretation of "claim", however, is inconsistent with the legislative history of § 101(4). As the Elias court observed:
Hort...
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