City of Chicago Crushes Security Interest: Northern District Bankruptcy Court Reclassifies Secured Claim as Unsecured in Second Chapter 13. Debtor and Creditor Fail to Pay for Parking Tickets…and the Collateral is Pulverized.
(In re: Tiara Hill, N.D. Illinois, Eastern Division, 17 BK 27598) (2-22-18).
After filing a Chapter 13 Bankruptcy, a debtor lost their car to the City of Chicago due to post-petition parking tickets. The vehicle was subject to a security interest. The lien holder was told by the debtor after repossession that their claim would be treated as secured despite the repossession. Both received notice of the impound, but neither the debtor or the lien-holder acted to recover the vehicle. The 2008 Chevrolet Impala was promptly crushed by the City. The destruction of vehicles in this manner is specifically permitted with 15 days’ notice by the Chicago Municipal Code. The Chapter 13 plan was later dismissed for failure to make plan payments.
The Debtor (after vehicular obliteration) filed a second Chapter 13 Petition and treated the lien-holder as an unsecured creditor. The Court agreed with this classification.
First, the Court held that any promise in the first Chapter 13 case to treat the claim as secured would not require the debtor to recover the vehicle. Further, that agreement would not extend to subsequent bankruptcy filings.
The Court also found that the debtor did not act in bad faith where the failure to recover the vehicle was solely due to the debtor’s financial situation. Given the superior financial means of the creditor, the creditor’s inaction was held to be the primary cause for the loss of collateral. The Court also summarily rejected any claim by the lender that it was entitled to “special classification,” and would be given equal treatment to other unsecured claims.
Given the ruling, creditors would be wise to recover any collateral facing destruction. If the City of Chicago is involved, sooner rather than later.
Malmquist, Geiger & Durkee LLC is a law firm located in Morris, Illinois. For over 35 years our firm has been dedicated to providing first-class professional services to our community. If you need sound legal advice from an experienced professional, call to schedule an appointment.