In re Wigfall, 19 B 20319

606 B.R. 784

IN RE: Shuntavia D. WIGFALL, Debtor.

No. 19 B 20319

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

Signed October 29, 2019

Ross H. Briggs, Attorney At Law, Chicago, IL, for Debtor.

Charles A. King, Attorney for City of Chicago.

MEMORANDUM OPINION

Carol A. Doyle, United States Bankruptcy Judge

Chapter 13 debtor Shuntavia Wigfall moves to avoid the lien of the City of Chicago on her car. She asserts that it is a judicial lien that can be avoided under § 522(f) of the Bankruptcy Code because it impairs her exemption in the car. The City contends that its lien is not avoidable under § 522(f) because it is a statutory lien, not a judicial lien. The debtor is correct. The City holds a judicial lien that may be avoided under § 522(f). The motion will be granted.

I. Background

The debtor owns a 2005 Jeep Grand Cherokee that she valued in Schedule B at $2,000. She listed a lender in Schedule D as a creditor secured by a non-purchase money security interest in the car. She also listed the City of Chicago as a creditor owed $13,884 for unpaid parking tickets. The City impounded her car pre-petition and asserts a possessory lien in it. The debtor claimed a $2,400 exemption in the car under 735 ILCS 5/12-1001(c) (West 2019). She moved to avoid the City's lien under § 522(f) of the Bankruptcy Code, 11 U.S.C. § 522(f), because it impairs her exemption.

II. Avoiding a Judicial Lien that Impairs an Exemption

Section 522(f) permits a debtor to avoid a judicial lien that impairs an exemption. 11 U.S.C. § 522(f)(1)(A). The statute states that the "debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is – (A) a judicial lien ...." 11 U.S.C. § 522(f)(1). To obtain relief under this section, a debtor must satisfy four requirements: (1) the debtor must properly assert an exemption in property in which she has an interest, (2) there must be a lien on the property, (3) the lien must impair the exemption, and (4) the lien must be a judicial lien. See, e.g. , In re Rosol , 114 B.R. 560, 562 (Bankr. N.D. Ill. 1989).

The parties do not dispute that the debtor meets the first three requirements. First, the debtor owns the car and properly asserted a $2,400 exemption in it as permitted under § 522(b)(1) and 735 ILCS 5/12-1001(c). Second, the City asserts a lien on the debtor's car created under §§ 9-92-080-080(f), 2-14-132(l), and 9-100-120(j) of the Municipal Code of Chicago ("M.C.C."). These sections provide that a vehicle impounded by the City is subject to a possessory lien in favor of the City in the amount required to obtain release of the vehicle. Third, the City's lien impairs the debtor's exemption of the full value of the car.

The parties dispute the fourth requirement – whether the City's lien is a judicial lien. The debtor contends that it is a judicial lien because the City must follow an administrative adjudicatory process before it can impound a car and create a lien. The City contends that the lien is statutory because it is created automatically once the City impounds a car.

III. Judicial Liens vs. Statutory Liens

The outcome here depends on whether the City's lien is a judicial lien or a statutory lien. The Bankruptcy Code define both terms. Section 101(36) states that a "judicial lien" is a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36). Section 101(53) states that a "statutory lien" is a "lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute." 11 U.S.C. § 101(53). Judicial liens and statutory liens are mutually exclusive. 11 U.S.C. § 101(53) ; In re Leaks (Ark. Dept. of Workforce Serv. v. Leaks) , No. 16-00267, 2017 WL 2577546 (E.D. Ark. June 14, 2017).

The key difference is that a statutory lien must arise "solely" by virtue of the statutory provision creating it whereas a judicial lien arises after some kind of process – judicial, quasi-judicial, or administrative.

As the Third Circuit has explained, "for a lien to be judicial, there must be some judicial or administrative process or proceeding that ultimately results in the obtaining of the lien." In re Schick , 418 F.3d 321, 328 (3rd Cir. 2005). The Schick court defined a "statutory lien" as "only one that arises automatically and is not based on an agreement to give a lien or on judicial action." Id. at 323 (citations omitted).

As various courts have noted, the legislative history gives examples of statutory liens:

A statutory lien is only one that arises automatically, and is not based on an agreement to give a lien or judicial action. Mechanics', materialmen's, and warehousemen's liens are examples. Tax liens are also included in the definition of statutory lien.

H.R.Rep. No. 95-595 (1977), reprinted in 1978 U.S.C.C.A.N. 6271; Schick , 418 F.3d at 324 ; Rosol , 114 B.R. at 565.

A prime example of a statutory lien is a mechanic's lien. The lien attaches by statute to improved property from the date that payment for labor and materials to make the improvement is due. No judicial, administrative, or other process must be followed before the claimant obtains the lien. See, e.g. , 770 ILCS 60/1 (West 2019) ; In re Beck , No. 15-29541, 2016 WL 489892 (Bankr. E.D. Wis. Feb. 5, 2016) ("The provisions of [Wisconsin mechanic's lien and construction lien statutes] create a lien by their very texts. The statutes create the liens automatically, without any judicial, legal or other process. This is the essence of statutory lien."), vacated as moot sub nom . Wisconsin v. Boyd , No. 16-202, slip op. at 5 (E.D. Wis. filed Feb. 21, 2017).

Judicial liens, by contrast, require some type of process before the lien arises. When the statute that creates the lien provides an adjudicatory process for determining the claimant's rights, the lien that arises is judicial, not statutory. In Leaks , for example, the court held that a lien is judicial when an administrative process must be followed before it can be asserted. The State of Arkansas determined that it had overpaid unemployment benefits based on fraud. It issued a notice of the determination, and when the time for contesting or appealing the determination expired, it recorded a certificate that created a lien under a state statute. The state argued that the lien was statutory because it arose solely because of the recording of its certificate.

The court rejected this argument, explaining that the lien was judicial because the quasi-judicial process required before the certificate could be recorded was "a necessary component of a lien's creation." Leaks , 2017 WL 2577546 at *3. The court refused to "disconnect" the lien's creation by the filing of a certificate from the process that preceded the filing. Id. The court concluded that the state's lien was judicial and could be avoided under § 522(f).

The district court in Boyd reached the same conclusion under a similar Wisconsin statute. The district court rejected the state's argument that it held a statutory lien because the lien was created solely by the recording of a "warrant" when the statute required an administrative process before the warrant could be recorded. Boyd , slip op. at 8 ("I disagree that DWD's liens can be so easily separated from the underlying process through which they are obtained.").

The same is true here. The City's lien arises from Chicago Municipal Code provisions that create an administrative process that must be followed before the City can seize the car and create a lien. As the Seventh Circuit held in In re Fulton , 926 F.3d 916, 931 (7th Cir. 2019), for each ticket issued, the City must follow an administrative process by which that ticket becomes a "judgment" that can then be collected by seizing the car and asserting a lien. Fulton determined that the police power exception to the automatic stay did not apply because "[p]rior to impounding a vehicle, the City must administratively adjudicate the debtor's violations ... and those adjudications result in a determination of final liability – i.e., a judgment. Only after a debtor has two or three judgments against it does the Municipal Code authorize the City to impound the vehicle until the debtor pays the judgments and related costs and fees." Id. (citing M.C.C. §§ 2-14-132(c)(1)(A), 9-92-080, 9-100-120(b)). Although Fulton was interpreting an exception to the automatic stay and not the definition of "judicial lien," the court recognized that the City ordinances mandate an administrative process that culminates in a judgment before the City can seize a car and thereby assert a lien. The administrative process and resulting judgment make the City's lien judicial – one obtained by " ‘judgment, ... or other legal or equitable process or proceeding." 11 U.S.C. § 101(36). The City's lien can therefore be avoided under § 522(f).

The City argues that its lien is statutory because it is created under the Municipal Code by the simple act of impounding the vehicle. In its view, the administrative process required before it can impound the vehicle is irrelevant. The City ignores the Fulton decision interpreting the precise ordinances at issue here and holding that the City must obtain several "judgments" after administrative adjudications before it may impound a car.

The City relies instead on the Third Circuit Schick decision addressing a lien created by a New Jersey statute that bears no resemblance to the City's ordinances. In Schick , a debtor sought to use § 522(f) to avoid the lien of the New Jersey Motor Vehicles Commission on her real property. A...