Bankruptcy – Chapter 13 Payment Plan

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7^th Circuit Court of Appeals

Case Name: Kiera S. Cherry, et al., v. City of Chicago, Illinois

Case No.: 19-1534; 19-1558

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

Focus: Bankruptcy – Chapter 13 Payment Plan

This is the third—and we hope final—decision in a series arising from the efforts of debtors in Chapter 13 bankruptcy proceedings to avoid or defer paying parking and other vehicular fines. The first decision, In re Steenes, 918 F.3d 554 (7th Cir. 2019) (Steenes I), interprets 11 U.S.C. §1327(b), which provides: Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.

The Bankruptcy Court for the Northern District of Illinois adopted a form confirmation order for Chapter 13 plans that retained all property in the estate, notwithstanding this statutory presumption. Because fines for parking and other vehicular offenses in Chicago are assessed against the car’s owner, keeping cars in the estates meant that the automatic stay of 11 U.S.C. §362 prevented the City from using collection devices such as towing or booting. More: because the plans did not list fines as payable debts, the confirmation orders overrode any obligation to pay them.

Steenes I holds that this approach conflicts with §1327(b). We recognized that judges have discretion to keep property in an estate but added that “the exercise of all judicial discretion requires a good reason.” 918 F.3d at 557. Debtors may need cars but also must pay the cost of their maintenance— insurance, repairs, gasoline, and parking, among other things. Using the bankruptcy process to enable debtors to operate cars while avoiding the costs that others must pay is not appropriate. We wrapped up: A case-specific order, supported by good case-specific reasons, would be consistent with §1327(b), but none was entered in any of these cases.

Cherry reminds us that a bankruptcy court must confirm any plan that satisfies 11 U.S.C. §1325(a). Because that subsection does not address whether the estate holds assets such as cars, Cherry contends that it cannot matter why a given debtor checks the box. Yet §1325(a)(1) tells us that a court must confirm a plan if it “complies with the provisions of this chapter and with the other applicable provisions of this title”. Section 1327(b) is one of those provisions. It need not be mentioned separately in §1325(a). A bankruptcy court may confirm a plan that holds property in the estate only after finding good case-specific reasons for that action. Because the bankruptcy court approved these plans without finding that such reasons exist, its orders are REVERSED.

Reversed

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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.