In re Contreras

571 B.R. 789

IN RE: Edgar CONTRERAS Jr., Delia B. Ciruelas, Debtors.

Case No. 17–02507

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed August 14, 2017

George Kasios, The Law Office of George Kasios, Ltd., Lincolnwood, IL, for Debtors.

MEMORANDUM OF DECISION ON DEBTOR'S OBJECTION TO PROOF OF CLAIM # 3 OF UNIFUND CCR PARTNERS [DKT. NO. 85]

Jack B. Schmetterer, United States Bankruptcy Judge

Edgar Contreras Jr. and Delia B. Ciruelas ("Debtors") have objected to Unifund CCR Partners' ("Unifund") Proof of Claim # 3. (Claim # 3–1.)

For the reasons discussed below, Debtors' objection will be sustained.

UNDISPUTED FACTS

1. On or about December 11, 2007, Unifund (an assignee of Providian National Bank) filed a complaint in Illinois state court against Edgar Contreras, Jr. in an attempt to collect on the default of a credit card account.

2. On or about March 20, 2008, Unifund obtained an ex-parte judgment in the amount of $4,854.27 plus costs. (Dkt. No. 91.) Since then, the judgment has accrued interest at the statutory rate of 9% annually, pursuant to 735 ILCS 5/2–1303.

3. On January 28, 2017, Debtors filed a petition pursuant to Chapter 13 of Title 11 of the United States Bankruptcy Code.

4. On February 25, 2017, the Debtors filed a modified Chapter 13 plan (Dkt. No. 19.)

5. On March 20, 2017, Unifund filed its claim in the instant matter, Claim # 3. Debtors' Chapter 13 Plan was confirmed on April 5, 2017.

6. On June 18, 2017, Debtors filed an Objection to Unifund's Claim # 3 stating that the judgment is dormant and therefore unenforceable. Pursuant to 735 ILCS 5/12–108, dormant judgments are not enforceable until they are revived.

7. Following Debtors' Objection, Unifund filed its Response to Debtors' Objection to Claim # 3 on July 6, 2017. (Dkt. No. 91.)

8. Debtors subsequently filed their Reply to Objection to Proof Claim # 3 of Unifund CCR Partners on July 23, 2017. (Dkt. No. 94.)

JURISDICTION AND VENUE

Subject matter jurisdiction lies under 28 U.S.C. § 1334. Subject matter jurisdiction lies under 28 U.S.C. § 1334. The district court may refer cases arising under title 11 to a bankruptcy judge under 28 U.S.C. § 157, and this matter is referred here by District Court Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Venue lies under 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (B) and (O).

DISCUSSION

Objections to allowance of claims are governed by 11 U.S.C. § 502. Claims of creditors who file a proof of claim are "deemed allowed, unless a party in interest... objects." 11 U.S.C. § 502(a). The party objecting to claim allowance carries the burden of rebutting the proof of claim. In re Sentinel Mgmt. Grp. Inc. , 417 B.R. 542, 550 (Bankr. N.D. Ill. 2009). If a party objects to a claim under § 502, the bankruptcy court must determine the amount of the claim based upon the date of the bankruptcy petition, and allow the claim with respect to that amount, unless specific grounds for disallowing those claims exists. 11 U.S.C. §§ 502(b)(1)–(9), (d) and (e) ; see also Travelers Cas. & Sur. Co. of America v. Pac. Gas & Elec. Co. , 549 U.S. 443, 452, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007).

In their initial Objection, Debtors argue that Unifund's judgment obtained in March of 2008 is currently dormant pursuant to state statute and thus unenforceable. (Dkt. No. 85.) In its Response, Unifund contends that Debtors are barred from objecting to claims already filed, asserting that any such objections must be filed before the plan confirmation, and that attacks upon the validity of a claim after plan confirmation are collateral. (Dkt. No. 91.) Furthermore, Unifund argues that dormant Illinois judgments are not unenforceable so long as they are revivable within the 20 year time limit prescribed by statute. (Dkt. No. 91.) Finally, in their response Debtors contend that pursuant to Bankruptcy Rule 3007, there is no time limitation with regards to a debtor's ability to object to a claim. (Dkt. No. 94.) Additionally, the Debtors argue that a dormant judgment that has not been revived is unenforceable, and that the act of reviving the judgment would be a violation of the automatic stay pursuant to 11 U.S.C. § 362(a).

A. Debtors' Objection is Timely

Unifund first argues that the Debtors are precluded from filing an objection to its claim, because the Debtors filed the objection after plan confirmation. Bankruptcy Rule 3007(a) describes the process of objecting to a claim. Bankr. R. 3007. Rule 3007 does not require that an objection to a claim be made before a certain point of the litigation. Id. The rule merely requires that notice of the hearing be mailed or delivered to the claimant, debtor, debtor in possession and trustee at least 30 days prior to the hearing. Id.

Unifund relies on the Seventh Circuit case Adair v. Sherman ruling that confirmation of a Chapter 13 plan bars collateral attacks to claims already filed. 230 F.3d 890, 895 (7th Cir. 2000) ("The law is well settled that a confirmation order is res judicata as to all issues decided or which could have been decided at the hearing on confirmation."). In Adair , the debtor did not object to the creditor's claim during the Chapter 13 proceeding. Id at 894. The debtor later sued the creditor under the Fair Debt Collection Practices Act on the basis that the creditor overstated the value of its collateral. Id. The Seventh Circuit ultimately held that the debtor's suit was barred due to collateral estoppel because the debtor did not object during the bankruptcy proceeding. Id. at 896.

Since that decision, however, the Seventh Circuit has limited the application of Adair. In In re Hovis, the debtor objected to the amount of the creditor's claim after the bankruptcy court had confirmed the plan, but before payments had commenced. 356 F.3d 820, 821 (7th Cir. 2004). The creditor argued that under the Adair ruling, the debtor's collateral attack on the creditor's claim was barred because the plan had been confirmed. Id. The Seventh Circuit disagreed, writing that, "issue preclusion has no role within a unitary, ongoing proceeding." Id. at 822. The Seventh Circuit further noted that deadlines set by statutes and rules, as well as the law of the case and judicial estoppel are the only relevant factors within a single suit. Id. The setting of dates for filing of claims and objections is within the discretion of the bankruptcy court. Id. In In re Glenn, this court stated that, "even after the confirmation of a debtor's plan, the court is free to hear and rule on objections to such claims." 542 B.R. 833, 839–40 (Bankr. N.D. Ill. 2016). When a debtor makes an objection, as part of their bankruptcy case in the bankruptcy court, Adair does not apply. Id.

In this instance, the Debtors have filed their objection during the pendency of the bankruptcy case. Although the objection has been filed after the plan had been confirmed, Adair does not apply because, as the Seventh Circuit noted in Hovis, this is a unitary proceeding and the filed objection is not a collateral attack. The issue is not precluded and Debtors' objection may be heard.

Thus, for the foregoing reasons, Unifund is incorrect in its argument that Debtors may not object to its claim simply because the plan has been confirmed. Debtors' objection to Unifund's claim after the confirmation of the Chapter 13 plan may be heard.

B. Dormant Illinois Judgments

In bankruptcy proceedings, state law defines property rights of the bankrupt's estate and is not followed only when there is an actual conflict with the bankruptcy code. Butner v. United States , 440 U.S. 48, 54–55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Thus, Illinois law determines the creditor's rights with regards to dormant judgments. Unifund and Debtors present two separate issues for consideration with regards to the dormant judgment: First, whether the revival of a dormant Illinois judgment violates the automatic stay imposed by a bankruptcy proceeding and Second, whether such a dormant judgment is presently enforceable.

i. Revival of Dormant Judgments Does not Violate the Automatic Stay

The filing of a bankruptcy petition imposes an automatic stay, which prevents, "any act to create, perfect, or enforce any lien against property of the estate." 11. U.S.C. § 362(a)(4). Pursuant to Illinois law, a judgment becomes dormant if no action is taken to enforce it within seven years of it being rendered. 735 ILCS 5/12–108. A judgment that has become dormant may be revived by court order "in the twentieth year after its entry, or at any other time within 20 years after its entry if the judgment becomes dormant." 735 ILCS 5/2–1602.

In the instant case, Debtors correctly point out that because Unifund has taken no action to enforce its judgment within seven years of it being rendered, its judgment has become dormant. The question then is whether the act of reviving a judgment in an Illinois state court proceeding would now violate the automatic stay imposed in the bankruptcy proceeding. In Guertler v. Barlow Woods, Inc., the Illinois Court of Appeals decided that the revival of a judgment is neither the creation of a new judgment nor the enlargement of an existing judgment. 230 Ill.App.3d 933, 172 Ill.Dec. 745, 596 N.E.2d 24, 27 (1992). Therefore, any attempt by a creditor to revive its debt was not seen as a violation of the automatic stay, but rather an action maintaining the status quo. Id. ; see also Barber v. Emporium P'ship , 800 P.2d 795, 797 (Utah 1990) (renewing judgment does not violate automatic stay); In re Morton , 866 F.2d 561, 564 (2d Cir. 1989) (extending lien does not violate automatic stay); United States v. Sayres , 43 B.R. 437, 439 (W.D.N.Y. 1984) (refiling of tax lien did not violate the automatic stay).

Upon revival of Unifund's judgment against Debtors, Unifund may file an amended claim in order to enforce this judgment against Debtors in bankruptcy. Pursuant to 11 U.S.C. § 501 and ...