Bankruptcy – Chapter 13 Payment Plan

Listen to this article

7^th Circuit Court of Appeals

Case Name: City of Chicago, Illinois v. Marilyn O. Marshall

Case No.: 17-3630

Officials: EASTERBROOK, ROVNER, and HAMILTON, Circuit Judges.

Focus: Bankruptcy – Chapter 13 Payment Plan

In re Steenes, 918 F.3d 554 (7th Cir. 2019) (Steenes I), holds that the confirmation of a payment plan under Chapter 13 of the Bankruptcy Code causes the debtor’s assets, including automobiles, to revert to the debtor’s personal ownership unless the judge has made a debtor-specific finding under 11 U.S.C. §1327(b). We thought that this conclusion resolved the appeals. Although counsel briefed an additional question—whether automotive fines incurred by estates during confirmed Chapter 13 payment plans should be treated as administrative expenses—the City of Chicago said that this question need not be answered if we decided the §1327(b) issue in its favor, as we did.

Section 1305(a) allows a city to file a proof of claim for unpaid taxes—which means, Steenes and Dudley contend, that a city may not recover unpaid fines and penalties. Otherwise §1305(a)(1) would be surplusage, the argument runs, and it must not be read that way. See Hall v. United States, 566 U.S. 506, 517 (2012).  This is a non-sequitur. Section 1305 does not mention administrative expenses, as defined in §503, or change the priority of payment laid out in §507. It does not read like an exemption from payment, so that a debtor under Chapter 13 who hired a chauffeur would not ever need to pay the employee’s wages. (After all, §1305 does not mention wages any more than it mentions fines.) To the extent §1305 bears on our situation, the important subsection is §1305(a)(2), which authorizes claims for “property or services necessary for the debtor’s performance under the plan.” That reference to necessity kicks us back to §503(b)(1)(A), which says that necessary expenses receive administrative priority. And, as we have mentioned several times, it won’t do to ask whether violating local law was itself “necessary”; the question is whether operating a vehicle is necessary to earn the money needed to perform the Chapter 13 plan. If the answer is yes—and the debtors insist that cars are essential—then the costs of operating that necessary asset are themselves necessary. That’s why a debtor who must pay to park in private parking lots also must pay to park on public streets. The debtors have not cited any appellate decision holding or even suggesting that administrative expenses as defined in §503(b)(1)(A) are outside the scope of §1305(a)(2).

We hold that vehicular fines incurred during the course of a Chapter 13 bankruptcy are administrative expenses that must be paid promptly and in full.

Reversed

Full Text

Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.