In re Shannon
| Decision Date | 07 September 2018 |
| Docket Number | Case No. 18 B 04116 |
| Citation | 590 B.R. 467 |
| Parties | IN RE: Timothy SHANNON, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Adam B. Bourdette, for Debtor.
Edward N. Siskel and David P. Holtkamp, for City of Chicago.
Timothy Shannon, the debtor in a chapter 13 bankruptcy case, seeks the return of his car from the City of Chicago. The City impounded Shannon's car before he filed his bankruptcy petition. He filed a plan treating the City's claim as unsecured. The City filed an unsecured proof of claim and did not object to the plan, which was confirmed. After confirmation, however, the City refused to return the car. The City then filed an amended proof of claim asserting a secured claim instead of an unsecured claim.
Shannon filed a motion alleging that the City violated the automatic stay by refusing to return the car. The City responds, in effect, that it can ignore the terms of the confirmed plan because its possessory lien on Shannon's car passes through the bankruptcy unaffected. The City contends that two exceptions to the automatic stay apply: the exception in § 362(b)(3) for certain types of liens and the exception in § 362(b)(4) for governmental units enforcing their police power. The City therefore argues that it need not return the car and can demand payment of the full amount owed.
Neither argument has merit. First, the City is bound by the terms of the confirmed plan. The City is only entitled to payment as an unsecured creditor in this case. Second, the automatic stay requires the City to return the car to Shannon because neither exception to the automatic stay applies in this case. The City should have released the car as soon as Shannon requested it after the bankruptcy case was filed.
Shannon filed a chapter 13 bankruptcy petition on February 15, 2018. The City seized Shannon's car sometime before he filed for bankruptcy. In his Schedule A/B, Shannon disclosed that he owns a 1997 Buick Park Avenue with 130,000 miles and worth $2,675. He scheduled the City as an unsecured creditor owed $1,645 for "fines." He filed a proposed chapter 13 plan with his petition. The plan contained no provision for payment to the City as a secured creditor. Two weeks later, on February 27, 2018, the City filed an unsecured claim in the amount of $3,160 for "parking tickets." Attached to the proof of claim was a list of what appear to be tickets issued on three different license plates over the course of many years, some from as far back as 1999. In April 2018, Shannon filed an amended plan that again did not provide for the City to be paid as a secured creditor. The City did not object to the plan. It was confirmed on May 1.
After confirmation, Shannon's counsel contacted the City to arrange for return of the car. The City refused to return the car unless Shannon modified his plan to treat the City's claim as secured and pay it in full under the plan. On May 2, the City filed an amended proof of claim in which it increased the amount of its claim to $5,600 owed for "parking tickets" and asserted that the claim was "secured" by a motor vehicle. The basis for perfection stated in the proof of claim was: "Vehicle Possessory Lien - 1997 Buick." The attachments were the same ones attached to the original claim and showed the same $3,160 amount due, but there was an additional page that said:
Impound Debt
Fine $ 1,000
Tow $ 150
Storage $ 2,190
Total $ 2,440
The City filed a second amended claim on July 3, 2018. It asserted that $5,600 was owed for "Fines for violations of the Chicago Municipal Code, and related fees" and that it was secured by a possessory lien on the Buick. The claim said that the City has a lien on a motor vehicle as follows: "Possessory Lien in vehicle plate no. AG61417." The asserted basis for perfection is "possession." There were no attachments to this amended claim.
After the City refused to return the car, Shannon filed a motion alleging that the City willfully violated the automatic stay by refusing to release the car. He relies on a decision of the Seventh Circuit Court of Appeals holding that the automatic stay requires a secured creditor with possession of a chapter 13 debtor's vehicle before the petition date to return the vehicle as soon as the petition is filed. See Thompson v. GMAC, LLC , 566 F.3d 699 (7th Cir. 2009). Shannon notes that the City relies on a decision of one bankruptcy judge in this district who concluded that the exception to the automatic stay in § 362(b)(3) applies to its possessory lien and permits the City to keep the car. Shannon argues that the City ignores three other decisions from bankruptcy judges in this district who concluded on various grounds that the automatic stay requires the City to return the cars of chapter 13 debtors in these circumstances.
The City responds to Shannon's motion for sanctions with a number of arguments. The City contends that the automatic stay does not apply because: (1) Thompson was wrongly decided, (2) the exception to the automatic stay in § 362(b)(3) for certain types of post-petition lien perfection applies, and all bankruptcy court decisions holding otherwise are incorrect, and (3) the police power exception in § 362(b)(4) also applies. The City argues as well that the confirmed plan has no impact on it because the plan did not strip its lien, so the lien passed through the confirmation process unaltered. The City therefore asserts that it is free to hold the car despite the confirmed plan and can force Shannon to pay the full amount the City now claims it is owed - $5,600 - based on its pre-petition seizure of a nearly twenty-year old car worth $2,675.1
To resolve this dispute, the court must first determine the effect of the confirmed plan on the City's rights. The court must then decide whether the automatic stay applies to stop the City from keeping possession of the car to collect on the debt owed by Shannon.
Shannon argues that the City is bound by the terms of the confirmed plan that treats the City's claim as an unsecured debt. He asserts that the City itself filed an unsecured claim before confirmation and did not object to the plan even though it treated the City as an unsecured creditor.2 Shannon seems to argue that the City has given up any rights it may have had as a secured creditor, and must therefore return the car and receive payment under the plan as an unsecured creditor.
The City responds that the plan does not contain provisions required to strip a lien so its lien was not eliminated through the confirmation process. The City therefore contends that the lien "passed through" the bankruptcy unaltered and that it is free to keep possession and demand full payment of the $5,600 amount alleged in the second amended claim. The City pays lip service to the principle that it is bound by the terms of a confirmed plan as every creditor is. But the City also asserts that its lien passed through the confirmation process unaltered, that it could amend its proof of claim post-confirmation because it did so before the government bar date, and that the automatic stay does not require the car to be returned. The City therefore contends that it is free to refuse to return the car until the debtor amends its plan to pay the entire amount of the amended claim as a secured claim. The net effect of the City's positions, if upheld, would allow the City to ignore the confirmation process and force a debtor to pay it in full after confirmation based on the City's possession of a vehicle no matter what the plan says.
The City is correct that its lien was not stripped off through confirmation of the plan. The national plan form used in this district requires a debtor who seeks to "strip off" a lien, pay less than the allowed amount of the secured claim, or avoid certain types of liens, to give the secured creditor notice of this intention in several ways. First, in Part 1 of the plan, the debtor must check one of the three boxes stating "Included," which notifies the creditor that the debtor seeks to limit the amount paid on a secured claim or avoid a lien. Then, the debtor must expressly request the relief sought by completing paragraphs 3.2, 3.4 or 8 of the plan, in which the debtor must identify the creditor and the proposed treatment. If the debtor fails to check the appropriate "Included" box in Part 1, then the treatment of a secured creditor named in sections 3.2, 3.4, or 8 of the plan will not be effective. Finally, if the debtor seeks to strip down or strip off a lien (i.e. , pay less than the total amount owed because the value of the collateral is lower) in section 3.2 of the plan, he must serve the plan on the secured creditor in accordance with Rule 7004 of the Federal Rules of Bankruptcy Procedure. See Fed. R. Bankr. P. 3012(b), 3015(d).
Here, Shannon did not check any box in Part 1 of the plan to give notice of an attempt to affect the lien of a secured creditor. He also failed to identify the City as a secured creditor anywhere in the plan. The City is therefore correct that confirmation of the plan did not eliminate its lien on Shannon's car. A lien that is not treated in a plan generally passes through the bankruptcy case unaffected. See, e.g., In re Pajian , 785 F.3d 1161, 1163 (7th Cir. 2015) ; In re Penrod , 50 F.3d 459, 461 (7th Cir. 1995) ; In re Turner , 558 B.R. 269, 278 (Bankr. N.D. Ill. 2016).
This does not mean, however, that the City could ignore the confirmation process and force Shannon to amend the confirmed plan to pay the full amount it now seeks as a secured claim. Section 1327(a) of the Bankruptcy Code provides that the "provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has...
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