In re Terrell, Case No. 19-07629

614 B.R. 300

IN RE: Ann TERRELL, Debtor.

Case No. 19-07629

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

Dated: April 8, 2020

Peter L. Berk, O'Keefe, Rivera & Berk, LLC, Attorney for Debtor

Bryan M. Wiley, Keough and Moody, P.C., Attorney for Creditor, Beaufort of Gordon Terrace Condominium Association

MEMORANDUM OPINION

Deborah L. Thorne, United States Bankruptcy Judge

The debtor, Ann Terrell, seeks sanctions against Beaufort of Gordon Terrace Condominium Association for violation of the discharge injunction entered in her chapter 7 case. Previously, the court reviewed the facts, the arguments of the debtor and Beaufort, and entered an order voiding the Circuit Court of Cook County eviction order because it violated the debtor's discharge. The court now grants the debtor's motion for sanctions as described below.

Background

The debtor filed a pro se chapter 7 petition in March 2019. She scheduled Beaufort as a creditor with a claim for past-due prepetition condominium assessments in the amount of $16,866.30 and disclosed the condominium association's Cook County Circuit Court forcible entry and detainer action against her. Within one day, Beaufort dismissed the eviction action without prejudice. The debtor did not reaffirm her debt to Beaufort and Beaufort did not object to her discharge or to the dischargeability of its claim. In July 2019, the debtor received a discharge of all her prepetition debts, including prepetition condominium assessments. Notice of the discharge order was mailed by the court to Beaufort and its attorney.

The debtor has paid all postpetition condominium assessments to Beaufort. In spite of these payments, shortly after her discharge, Beaufort reinstated the eviction action, seeking possession of the debtor's unit for nonpayment of $1 in personam liability, as well as $17,688 in prepetition assessments subject to the in rem lien.¹ In October 2019, Beaufort obtained an Order of Possession in the eviction action which was stayed for 60 days. The Order indicated that the debtor owes $1 in personam and $17,688 in rem . In addition, the order set a future date to consider a petition for attorneys' fees. The debtor was not represented by counsel during the eviction action.

Neither party disputes that the debtor discharged her personal liability for the prepetition assessments or that the lien has not been discharged and remains as a cloud on the title of the debtor's condominium unit. The questions addressed in this opinion include whether the discharge of the personal liability in the chapter 7 case enjoins Beaufort from pursuing its eviction action and, if so, whether, as this court previously found, the Circuit Court Order evicting the debtor is void. Finally, if Beaufort did violate the discharge injunction, is it liable for sanctions for its violation?

Illinois Condominium Property Act

Section 9 of the Illinois Condominium Property Act is entitled "Sharing of expenses—Lien for nonpayment" and provides that the failure to pay common expenses when due constitutes a lien on the interest of the unit owner prior to all other liens except taxes and other levies of political or municipal corporations and prior recorded encumbrances on the interest of the unit owner. 765 ILCS § 605/9(g). The lien of the condominium association is in favor of the association and is for the benefit of all other unit owners. 765 ILCS § 605/9(h).

Section 9.2 of the Condominium Property Act allows associations to maintain an eviction action against a defaulting unit owner for the benefit of all the other unit owners under the Illinois Code of Civil Procedure. 735 ILCS 5/9-101. Thus, the association may then evict the defaulting unit owner, rent the unit until the outstanding fees are paid and then return possession to the unit owner. The only way to avoid eviction is for the defaulting unit owner to pay the outstanding assessments. In this case, Terrell was not in default and she did not personally owe any assessments because her personal liability was discharged in her bankruptcy.

Bankruptcy Code Discharge Injunction

Section 727 of the Bankruptcy Code provides authority for the bankruptcy court to discharge an individual debtor from all debts that arose before the date of the order for relief whether or not a proof of claim is filed. 11 U.S.C. § 727(b). The discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor". 11 U.S.C. § 524(a)(2).

"Debts" subject to the discharge are defined as "liability on a claim" under section 101(12) of the Bankruptcy Code. Claim is defined as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 101(5)(A). Thus, the discharge serves to give a fresh start to the honest but unlucky debtor. Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 367, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007). The creditor has the burden of establishing by a preponderance of the evidence that the claim is not dischargeable.

Grogan v. Garner, 498 U.S. 279, 284, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

If a creditor wishes to demonstrate that a debt is nondischargeable, it must resort to section 523(a) of the Bankruptcy Code which provides a list of nondischargeable debts. Unless otherwise provided, a debt allegedly falling under one of these subsections that was timely listed by the debtor on her bankruptcy schedules is nevertheless discharged unless the creditor requests a hearing within 60 days after the date first set for the first meeting of creditors. 11 U.S.C. § 523(c)(1) ; Fed.R.Bankr.P. 4007(c). The bankruptcy court has the exclusive jurisdiction to determine whether the claim is discharged. Schroeder v. Winyard, 375 Ill.App.3d 358, 362, 313 Ill.Dec. 740, 873 N.E.2d 35 (2007) ; In re Mendiola, 99 B.R. 864, 866 (Bankr. N.D.Ill. 1989).

Bankruptcy Code section 523(a)(16) specifically excepts from discharge postpetition condominium assessments and thereby implies that prepetition condominium assessments are discharged.² In this case, the debtor's personal liability for the prepetition condominium assessments was discharged. Of course, a discharge in bankruptcy does not discharge or remove a lien upon the property of the debtor. The lien in this case is imposed by statute, presumably by the declaration on file with the recorder of deeds for Cook County, Illinois and continues as a cloud on the title. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (bankruptcy discharge extinguishes only actions against debtor in personam, leaving intact actions in rem ). Thus, the lien for the unpaid condominium assessments remains as a lien against her unit and is subject to foreclosure under state law.

The Eviction Action Violates the Discharge Injunction

A creditor may exercise its in rem rights against property without implicating the protections of the discharge injunction. 4 Collier on Bankruptcy ¶ 524.02(16th ed. 2018); Johnson, 501 U.S. at 84, 111 S.Ct. 2150. Thus, Beaufort could proceed to foreclose on the debtor's unit but would only collect against the property after all prior liens are paid, to the extent there was sufficient value. An action against the property does not violate the discharge injunction.

Beaufort argues, however, that it may also pursue eviction to collect on the in rem lien because Illinois law allows such an action. This is wrong. The condominium association may resort to eviction "when the action is based upon the failure of an owner of a unit therein to pay when due his or her proportionate share of the common expenses of the property." 735 ILCS 5/9-111. A creditor may not invoke a state law enforcement action to collect a personal liability which has been discharged. Doing so is a violation of the discharge injunction because the debt was discharged in bankruptcy. Pratt v GMAC (In re Pratt), 462 F.3d 14 (1st Cir. 2006) ; Paul v. Iglehart (In re Paul), 534 F.3d 1303 (10th Cir. 2008) ; In re Schlichtmann, 375 B.R. 41 (Bankr. D. Mass. 2007) ; 4 Collier on Bankruptcy ¶ 524.02(2)(a) ("[n]otwithstanding the facial permissibility of a lawsuit or some other action taken by a creditor vis-à-vis a discharged debtor, a violation of § 524(a)(2) may still be found if the debtor proves the creditor acted in such a way as to coerce or harass the debtor improperly i.e., so as to obtain payment of the discharged debt."). Although Illinois law allows eviction to collect on obligations owed by a unit owner, it can only pursue eviction if the personal liability for the assessments are due and in this case, the prepetition assessments were discharged. Further, the debtor has made all payments for her postpetition obligations to Beaufort, so there is no basis for an eviction action against the debtor.

The eviction action was filed, and could only be filed, to collect the discharged prepetition personal liability or the in personam claim. If successful, Beaufort would have evicted the debtor and rented the unit until the full discharged portion was paid. Had the debtor paid the discharged claim, Beaufort would not continue to pursue the eviction action. The action to evict is nothing less than an action to collect the discharged claim and violates the injunction.

Beaufort argues that it is entitled to proceed with eviction of the debtor as a means to enforce its lien. Its cited support fails to support its position. Country Club Estates Condominium Ass'n v. Bayview Loan Servicing LLC, 416 Ill.Dec. 663, 84 N.E.3d 1140 (Ill. App. Ct. 2017) and 1010 Lake Shore Ass'n v. Deutsche Bank Nat'l Trust Co. , 2015 IL 118372, 398 Ill.Dec. 95, 43 N.E.3d 1005. Neither case considers the bankruptcy discharge of in personam liability, but rather whether a condominium...