In re Hill

585 B.R. 520

IN RE: Tiara HILL, Debtor.

Case No. 17 BK 27598

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

Signed February 22, 2018

Entered February 23, 2018

Alexander Preber, John P. Wonais, The Semrad Law Firm, LLC, Chicago, IL, for Debtor.

MEMORANDUM OPINION ON DEBTOR'S OBJECTION TO CLAIM # 3 OF GREATER CHICAGO FINANCE COMPANY [DKT NO. 29]

Jack B. Schmetterer, United States Bankruptcy Judge

This matter comes before the Court on Debtor Tiara Hill's ("Debtor") Objection to Proof of Claim # 3 of Greater Chicago Finance Company ("Greater Chicago"). Debtor seeks to disallow Greater Chicago's claim, insofar as it is a secured claim.

For the reasons discussed below, Debtor's Objection will be sustained. The following undisputed facts appear from the pleadings of the parties.

UNDISPUTED FACTS

1. Debtor's instant Chapter 13 case was filed on September 14, 2017. (Dkt. No. 3.)

2. Debtor had filed a previous Chapter 13 bankruptcy case on December 22, 2015, which was dismissed on November 16, 2016 for failure to make plan payments. (Dkt. No. 29.)

3. The plan filed in the prior case treated Greater Chicago as a secured creditor and it was being paid pursuant to Section E3 of Debtor's plan. (Dkt. No. 29.)

4. Greater Chicago's claim arose from a lien created on October 8, 2015, as to a vehicle purchased within 910 days of the filing of the instant bankruptcy petition, secured by a 2008 Chevrolet Impala. Greater Chicago's secured claim in the earlier case was for $8,844.01 with an interest rate of 6.5% to be paid through Debtor's plan. (Dkt. No. 30.)

5. In Debtor's instant case, Greater Chicago filed its secured Claim No. 3–1 on October 11, 2017, claiming to be a secured creditor with a claim amount of $7,293.76. (Dkt. No. 29.)

6. During the pendency of Debtor's prior case, the Debtor's vehicle was impounded by the City of Chicago due to post-bankruptcy parking tickets. (Dkt. No. 29.)

7. Both Debtor and Greater Chicago received notice of the impoundment. (Dkt. No. 30.)

8. Greater Chicago contacted Debtor's attorney, and was told that there would be no change as to the debtor's treatment of their claim in the pending plan, even if no stay relief was granted. (Dkt. No. 30.)

9. Greater Chicago did not file any motion to lift the automatic stay or otherwise seek to retrieve the vehicle from the City of Chicago. (Dkt. No. 36.)

10. Debtor also took no action to recover the vehicle from the City of Chicago. (Dkt. No. 36.)

11. At some date, though neither party has indicated in its pleadings when, the City of Chicago completely crushed Debtor's vehicle in order to dispose of it. (Dkt. No. 29.)

12. On December 20, 2017, Debtor objected in this case to Claim No. 3–1 of Greater Chicago to the extent it continued to assert that it is a secured creditor. Debtor argues in her Objection that because the vehicle has been crushed and is no longer part of the estate, Greater Chicago's claim should be treated as a general unsecured claim. (Dkt. No. 29.)

13. On January 10, 2018, Greater Chicago filed its Response to Debtor's Objection. Greater Chicago argued that it did not seek to recover the vehicle from the City of Chicago because it was barred from doing so pursuant to the Automatic Stay, and that it did not seek stay relief because Debtor's attorney indicated that the treatment of Greater Chicago's claim would not be changed. Greater Chicago asserts that because it could not have known that Debtor would take no steps to recover the vehicle, and because it received no advance notice from the City of Chicago that the vehicle would be crushed, it should be paid in full on its secured claim. Greater Chicago further alleges that Debtor took no action to recover the vehicle and its current attempt to disallow its secured claim indicates that the plan has not been proposed in good faith.

14. Alternatively, Greater Chicago asserts that it should be treated as a specifically classified unsecured claimant. If Debtor can provide proof that the vehicle was crushed, it argues, it should not be paid less than 100% of its claim and it should not be deprived of its claim because of Debtor's failure to recover the vehicle. Greater Chicago does not explain why it should be afforded special classification as an unsecured creditor and cites no authority supporting its contention. Indeed, Greater Chicago does not even articulate what it seeks when it says it should be granted status as a "specifically classified unsecured claim." (Dkt. No. 30.)

15. On January 23, 2018 Debtor filed her Reply. Debtor argues that in the prior bankruptcy case, Greater Chicago "buried its head in the sand," and lost its rights by refusing to move for stay relief once it was informed of the impoundment. Debtor states that she was not able to recover the vehicle from the impound because it would cost her nearly $2,000.00, an amount she was unable to pay at the time. Debtor argues that there is no legal basis for Greater Chicago to be considered a secured creditor, pursuant to 11 U.S.C. § 506(a) and In re Hauter, No. 10-70234, 2010 WL 4115476 (Bankr. C.D. Ill. Oct. 18, 2010) (holding that in order to be a secured creditor and have an allowed secured claim, collateral must be in existence).

16. Additionally, Debtor argues that if § 506 does not apply in this case, the Debtor may surrender whatever interest she has in the vehicle and Greater Chicago will still only have a general unsecured claim. Debtor further argues that there is no reason that Greater Chicago's unsecured claim should be treated in any special manner pursuant to 11 U.S.C. § 1322. Finally, Debtor asserts that she has complied with 11 U.S.C. § 1325 because she has proposed her plan in good faith, and Greater Chicago's argument that it is untreated in the plan is untrue because it is treated as general unsecured creditor. (Dkt. No. 36.)

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)(B).

DISCUSSION

The dispute between Debtor and Greater Chicago centers around the extent to which, if at all, Greater Chicago remains a secured creditor, even though Debtor's vehicle was crushed by the City of Chicago and now has no value. Greater Chicago has not identified any authority or set forth any particular argument as to why it should be considered a secured creditor in this case, other than to blame Debtor for the act of not recovering the vehicle. By the very definition of "secured creditor," it does not appear that Greater Chicago can claim that status. Generally speaking, "a claim cannot be a ‘secured claim’... unless it is secured by a ‘lien’ on some specific item of property in which the estate has an interest, or, alternatively, is a claim that is subject to a right of setoff." 16 Collier on Bankruptcy ¶ 506.03. Given that the specific item of property securing the loan no longer exists, Greater Chicago cannot contend that it is a secured creditor. Several bankruptcy courts have held that, "[c]ase law is clear that the existence of collateral is necessary both to support the allowance of a secured claim and for a creditor to be treated as a secured creditor in a plan. In re Hauter , No. 10-70234, 2010 WL 4115476, at *2 (Bankr. C.D. Ill. Oct. 18, 2010) ; see also In re Elliott, 64 B.R. 429, 431 (Bankr. W.D. Mo. 1986) ; In re Gabor , 155 B.R. 391,394 (Bankr. N.D. W.Va. 1993) ; In re E.P. Fournier Co., Inc., 225 B.R. 276, 277 (Bankr. D. R.I. 1998). Additionally, the Illinois U.C.C., upon which secured creditors' rights are based, supports this analysis because it states that while a creditor's perfected security interest may continue in the proceeds of the disposition of collateral, including insurance proceeds, such a security interest merely, "attaches to any identifiable proceeds of collateral." Illinois U.C.C., 810 ILCS 5/9–315(a)(2) (emphasis added). Neither party has identified any such proceeds (insurance payments or otherwise), so it appears that Greater Chicago's security interest did not continue to attach to anything at all, rendering it a general unsecured creditor.

Greater Chicago has not cited any authority supporting its assertion that it should continue to be treated as a secured creditor. Its primary argument is that because Debtor took no action to recover the vehicle from being impounded by the City of Chicago, the Debtor somehow acted wrongfully and should thus be required to pay the full amount of Greater Chicago's claim. What Greater Chicago fails to understand with regards this line of argument is that Debtor was under no obligation to take any action to recover the vehicle. The Chicago Municipal Code states that:

a. Unless a vehicle is held pursuant to applicable state, federal or any other law, or a court order or warrant that authorizes the continued impoundment of the vehicle, the owner or other person entitled to possession of a vehicle impounded pursuant to Section 9–92–030 may obtain immediate release of the vehicle by paying the full amount of the applicable towing and storage fees, as provided in subsection (b), plus all amounts due for outstanding final determinations of parking and/or compliance violations (if the vehicle is also subject to immobilization for unpaid final determinations of parking and/or compliance violations). Regardless of whether the owner or other person entitled to possession obtains immediate release of the vehicle through making full payment, such person may request a hearing before the department of administrative hearings to be held in accordance with Section 2–14–135 of this Code.

Chicago Mun. Code § 9–92–080 (emphasis added). The Chicago Municipal...