City of Chicago v. Kiera Cherry, No. 19-1558 (7th Cir. 2020)

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Justia Opinion Summary

Chicago assesses fines for parking and other vehicular offenses against the owner. If the owner filed bankruptcy, keeping the car in the estate meant that the automatic stay prevented the city from using collection devices such as towing or booting. The Seventh Circuit previously held 11 U.S.C. 1327(b), which provides that “confirmation of a plan vests all of the property of the estate in the debtor” precludes debtors from avoiding such fines by keeping the car in the estate except when a court enters a case-specific order, supported by good case-specific reasons. Bankruptcy judges then changed their form confirmation order, adding a checkbox through which debtors could elect a departure from the statutory presumption. The Seventh Circuit then held that vehicular fines are administrative expenses that bankruptcy estates must pay even though not listed on debtors’ 11 U.S.C.507(a)(2) schedules. Whether a car’s title returns to the owner on confirmation of the plan or remains in the estate, vehicular fines must be paid.

The Seventh Circuit then reversed confirmation orders that were based only on the debtor’s choice. Immunity from traffic laws is not an outcome plausibly attributed to the Bankruptcy Code. A bankruptcy court must confirm any plan that satisfies 11 U.S.C. 1325(a) and "other applicable provisions of this title”; section 1327(b) is an applicable provision. A bankruptcy court may confirm a plan that holds property in the estate only after finding good case-specific reasons for that action.

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In the United States Court of Appeals For the Seventh Circuit ____________________ Nos. 19-1534 & 19-1558 IN THE MATTER OF: KIERA S. CHERRY and LUCINDA E. DAVIS, APPEALS OF: Debtors. CITY OF CHICAGO, ILLINOIS ____________________ Appeals from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. Nos. 18 B 25113 & 33492 — A. Benjamin Goldgar, Chief Bankruptcy Judge. ____________________ SUBMITTED MAY 11, 2020 — DECIDED JULY 6, 2020 ____________________ Before EASTERBROOK, ROVNER, and HAMILTON, Circuit Judges. EASTERBROOK, Circuit Judge. This is the third—and we hope nal—decision in a series arising from the e orts of debtors in Chapter 13 bankruptcy proceedings to avoid or defer paying parking and other vehicular nes. 2 Nos. 19-1534 & 19-1558 The rst 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 con rming the plan, the con rmation 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 con rmation order for Chapter 13 plans that retained all property in the estate, notwithstanding this statutory presumption. Because nes for parking and other vehicular o enses 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 nes as payable debts, the con rmation orders overrode any obligation to pay them. Steenes I holds that this approach con icts 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-speci c order, supported by good case-speci c reasons, would be consistent with §1327(b), but none was entered in any of these cases. 918 F.3d at 558. See also In re Heath, 115 F.3d 521, 524 (7th Cir. 1997) (anticipating this conclusion). Nos. 19-1534 & 19-1558 3 Soon after Steenes I issued, bankruptcy judges in the Northern District of Illinois changed their form con rmation order to eliminate the provision that inverted the statutory presumption, but the court added to a di erent form a checkbox through which debtors could elect the same thing. Chicago opposed the con rmation of plans proposed by debtors who checked that box. A bankruptcy judge denied the objection and approved the plan proposed by Kiera Cherry, the debtor in the lead case. The judge stated from the bench that debtors need not explain why they want to retain a given asset in the estate. In response to the City’s contention that case-speci c reasons are essential to a departure from the statutory presumption, the judge said that Steenes I applies only to judicial ndings. Because “debtors don’t make ndings”, they also need not explain their choices—and because the judge read the statute to allow debtors to keep assets in the estate without reasons, he added that the judiciary need not justify approval of a plan re ecting a debtor’s choice. The judge stated that he would summarily deny any objection to the con rmation of similar plans. When the City objected to a plan proposed by Lucinda Davis, the judge did just that. Chicago and the debtors jointly asked us to accept appeals direct to the court of appeals, bypassing the district court, on the authority of 28 U.S.C. §158(d)(2)(A). We granted that motion but deferred the ling of briefs until we had decided a follow-up to Steenes I. That successive decision, In re Steenes, 942 F.3d 834 (7th Cir. 2019) (Steenes II), interprets 11 U.S.C. §507(a)(2), which de nes administrative expenses that bankruptcy estates must pay even though not listed on debtors’ schedules. We 4 Nos. 19-1534 & 19-1558 held that vehicular nes are administrative expenses under §507(a)(2). We deferred brie ng in Cherry and Davis because we thought that the parties might conclude that the resolution no longer mamers. Whether a car’s title returns to the owner on con rmation of the plan or remains in the estate, vehicular nes must be paid. Cherry and Davis should be current on nes because, although the bankruptcy court allowed their cars to remain in the Chapter 13 estates, the nes are administrative expenses under Steenes II. Still, the parties proceeded to brief the merits. Even with the nes classi ed as administrative expenses, the City must rely on the estate to remit the money. The automatic stay of enforcement devices such as towing appears to make it hard to collect nes, so the City seeks a remedy—removal of the autos from the estates—that enables it to use these devices without case-speci c motions to lift the stay. Cherry and Davis defend the bankruptcy judge’s approach, but it is as inconsistent with the statute as the approach disapproved in Steenes I. Here again is the language of §1327(b): Except as otherwise provided in the plan or the order con rming the plan, the con rmation of a plan vests all of the property of the estate in the debtor. This treats “a provision in the plan” and “the order con rming the plan” identically. We held in Steenes I that the statutory presumption—“con rmation of a plan vests all of the property of the estate in the debtor”—means that there must be a good case-speci c reason for doing otherwise. Whether the debtor (by checking a box) or the judge (through a form order) proposes the departure from the statutory norm does Nos. 19-1534 & 19-1558 5 not a ect the need for justi cation. And, Steenes I held, a desire to obtain free parking, or otherwise get the bene t of a car without satisfying all ongoing expenses of driving, is not a good reason. Steenes I observes that the debtors had not contended that keeping cars in the estates “has any e ect, any at all, other than sheltering sco aws.” 918 F.3d at 558. Cherry and Davis likewise are silent. Instead they contend that a debtor’s choice prevails even if it is made simply to avoid the payment of nes. As we replied in Steenes I: “Immunity from tra c laws for the duration of a Chapter 13 plan does not seem to us an outcome plausibly amributed to the Bankruptcy Code.” 918 F.3d at 557. Cherry reminds us that a bankruptcy court must con rm any plan that satis es 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 mamer why a given debtor checks the box. Yet §1325(a)(1) tells us that a court must con rm 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 con rm a plan that holds property in the estate only after nding good case-speci c reasons for that action. Because the bankruptcy court approved these plans without nding that such reasons exist, its orders are REVERSED.
Primary Holding
A bankruptcy court may confirm a Chapter 13 plan that holds property in the estate only after finding good case-specific reasons for that action other than the avoidance of parking and other vehicular fines.

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