City of Chicago v. Robbin L. Fulton

• Court: Court of Appeals for the Seventh Circuit
• Decided: June 19, 2019
• Docket: 18-2527
• Status: Published

Opinion

In the

United States Court of Appeals For the Seventh Circuit ____________________

No. 18‐2527 IN RE: ROBBIN L. FULTON, Debtor‐Appellee. APPEAL OF: CITY OF CHICAGO ____________________

Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 18‐02860 — Jack B. Schmetterer, Bankruptcy Judge. ____________________ No. 18‐2793 IN RE: JASON S. HOWARD, Debtor‐Appellee. APPEAL OF: CITY OF CHICAGO ____________________

Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 17‐25141 — Jacqueline P. Cox, Bankruptcy Judge. ____________________ 2 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

No. 18‐2835 IN RE: GEORGE PEAKE, Debtor‐Appellee. APPEAL OF: CITY OF CHICAGO ____________________

Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 18‐16544 — Deborah Lee Thorne, Bankruptcy Judge. ____________________ No. 18‐3023 IN RE: TIMOTHY SHANNON, Debtor‐Appellee. APPEAL OF: CITY OF CHICAGO ____________________

Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 18‐04116 — Carol A. Doyle, Chief Bankruptcy Judge. ____________________

ARGUED MAY 14, 2019 — DECIDED JUNE 19, 2019 ____________________

Before FLAUM, KANNE, and SCUDDER, Circuit Judges. FLAUM, Circuit Judge. In this consolidated appeal of four Chapter 13 bankruptcies, we consider whether the City of Chicago may ignore the Bankruptcy Code’s automatic stay and continue to hold a debtor’s vehicle until the debtor pays her outstanding parking tickets. Prior to the debtors’ filing for bankruptcy, the City impounded each of their vehicles for Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 3

failure to pay multiple traffic fines. After the debtors filed their Chapter 13 petitions, the City refused to return their ve‐ hicles, claiming it needed to maintain possession to continue perfection of its possessory liens on the vehicles and that it would only return the vehicles when the debtors paid in full their outstanding fines. The bankruptcy courts each held that the City violated the automatic stay by “exercising control” over property of the bankruptcy estate and that none of the exceptions to the stay applied. The courts ordered the City to return debtors’ vehicles and imposed sanctions on the City for violating the stay. This is not our first time addressing this issue: in Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009), we held that a creditor must comply with the automatic stay and return a debtor’s vehicle upon her filing of a bankruptcy petition. We decline the City’s request to overrule Thompson. We therefore affirm the bankruptcy courts’ judgments relying on Thompson, and we also agree with the bankruptcy courts that none of the exceptions to the stay apply. I. Background The Chicago Municipal Code permits creditor‐appellant the City of Chicago to immobilize and then impound a vehicle if its owner has three or more “final determinations of liabil‐ ity,” or two final determinations that are over a year old, “for parking, standing, compliance, automated traffic law enforce‐ ment system, or automated speed enforcement system viola‐ tion[s].” Municipal Code of Chicago (“M.C.C.”) § 9‐100‐ 120(b); see also id. § 9‐80‐240(a) (providing for impoundment of vehicles “operated by a person with a suspended or re‐ voked driver’s license”). The fines for violations of the City’s Traffic Code range from $25 (e.g., parallel parking violation) 4 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

to $500 (e.g., parking on a public street without displaying a wheel tax license emblem). Id. § 9‐100‐020(b)–(c). Failure to pay the fine within twenty‐five days automatically doubles the penalty. Id. § 9‐100‐050(e). After a vehicle is impounded, the owner is further subjected to towing and storage fees, see id. § 9‐64‐250(c), and to the City’s costs and attorney’s fees for collection activity. Id. §§ 1‐19‐020, 2‐14‐132(c)(1)(A). To re‐ trieve her vehicle, an owner may either pay the fines, towing and storage fees, and collection costs and fees in full, id. § 2‐ 14‐132(c)(1)(A), or pay the full amount via an installment plan over a period of up to thirty‐six months, provided she makes an initial payment of half the fines and penalties plus all of the impoundment, towing, and storage charges. Id. § 9‐100‐ 101(a)(2)–(3). In 2016, the City amended the Code to include: “Any ve‐ hicle impounded by the City or its designee shall be subject to a possessory lien in favor of the City in the amount required to obtain release of the vehicle.” Id. § 9‐92‐080(f). Based on this provision, the City began refusing to release impounded ve‐ hicles to debtors who had filed Chapter 13 petitions. That is just what occurred in these four cases. A. In re Fulton Debtor‐appellee Robbin Fulton uses a vehicle to commute to work, transport her young daughter to day care, and care for her elderly parents on weekends. On December 24, 2017, three weeks after she purchased a 2015 Kia Soul, the City towed and impounded the vehicle for a prior citation of driv‐ ing on a suspended license. Fulton filed a Chapter 13 bank‐ ruptcy petition on January 31, 2018 and filed a plan on Febru‐ ary 5, treating the City as a general unsecured creditor. The City filed a general unsecured proof of claim on February 23 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 5

for $9,391.20. After the court confirmed Fulton’s plan on March 21, she requested the City turn over her vehicle. The City then amended its proof of claim to add impound fees, for a total of $11,831.20, and to assert its status as a secured cred‐ itor; it did not return Fulton’s vehicle. On May 2, Fulton filed a motion for sanctions arguing the City was required to turn over her vehicle pursuant to Thomp‐ son and that its failure to do so was sanctionable conduct. The City countered that Fulton must seek turnover through an ad‐ versary proceeding. It asserted it was retaining possession to perfect its possessory lien and was thus excepted from the au‐ tomatic stay pursuant to 11 U.S.C. § 362(b)(3). On May 25, the bankruptcy court held that the City was required to return Fulton’s vehicle under Thompson and that the City was not excepted from the stay under § 362(b)(3). The court ordered the City to turn over Fulton’s vehicle no later than May 29, imposed a sanction of $100 for every day the City failed to comply, and sustained Fulton’s objection to the City’s claim as a secured creditor. The City moved to stay the order in the district court pending appeal; the district court denied the stay request on September 10. Eventually, the City returned Fulton’s vehicle. At no point did the City initiate proceedings to protect its rights under § 363(e). B. In re Shannon The City impounded debtor‐appellee Timothy Shannon’s 1997 Buick Park Avenue on January 8, 2018 for unpaid park‐ ing tickets. Shannon filed a Chapter 13 petition on February 15. On February 27, the City filed an unsecured proof of claim for $3,160 in fines dating back to 1999. Shannon, in turn, filed a proposed plan that did not include the City as a secured 6 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

creditor, to which the City did not object, and the court con‐ firmed the plan on May 1. When Shannon sought the return of his vehicle, the City amended its proof of claim, adding fines, storage, and towing fees for a total of $5,600, and stated the claim was secured by its possession of Shannon’s vehicle. Shannon filed a motion for sanctions on June 12, asserting the stay required the City to turn over his vehicle. The court granted his motion on September 7; it held the City’s claim was unsecured because it did not object to the plan that char‐ acterized the debt as such. It also determined the City violated the stay by failing to return Shannon’s vehicle, that the §§ 362(b)(3) and (b)(4) exceptions to the stay did not apply, and that the City further violated § 362(a)(4) and (a)(6) by re‐ taining the vehicle. The court noted the City was free to file a motion seeking adequate protection of its lien. The City re‐ turned Shannon’s car and did not file any such motion. C. In re Peake Debtor‐appellee George Peake relies on his car to travel approximately forty‐five miles from his home to work. The City impounded his 2007 Lincoln MKZ for unpaid fines on June 1, 2018. Peake filed a Chapter 13 petition on June 9. In response, the City filed a secured proof of claim for $5,393.27 and asserted a possessory lien on his vehicle. After the City refused Peake’s request to return his vehicle, he filed a motion for sanctions and for turnover. On August 15, the bankruptcy court granted the motion; it held that neither § 362(b)(3) nor (b)(4) applied, so the City’s retention of Peake’s vehicle vio‐ lated the stay, and it ordered the City to release his vehicle immediately. The City filed a motion to stay the order pend‐ ing appeal, which the court denied on August 22. The same day, Peake filed a motion for civil contempt based on the Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 7

City’s refusal to release his vehicle. The court granted the mo‐ tion and entered an order requiring the City to pay monetary sanctions—$100 per day from August 17 through August 22 and $500 per day thereafter until the City returned his vehicle. The City filed an emergency motion for a stay pending appeal in our Court, which we denied. Finally, the City released Peake’s vehicle. At no point did the City file a motion to pro‐ tect its interest in the vehicle. D. In re Howard The City immobilized debtor‐appellee Jason Howard’s ve‐ hicle on August 9, 2017 and impounded it soon after. Howard filed a Chapter 13 petition on August 22. The City filed a se‐ cured proof of claim on August 23 for $17,110.80. The court confirmed Howard’s plan on October 16, which included a nonpriority unsecured debt of $13,000 owed to the City for parking tickets. Though the Code did not impose an auto‐ matic stay when Howard filed his petition due to his prior dismissed bankruptcy petitions, see 11 U.S.C. § 362(c)(4)(A), the court granted Howard’s motion to impose a stay when it confirmed his plan on October 16. The City did not object to its treatment as unsecured under the plan and did not appeal the confirmation order; rather, it simply refused to release Howard’s vehicle unless he paid 100% of its claim. On January 22, 2018, the court issued a rule to show cause to the City why it should not be sanctioned for refusing to re‐ lease Howard’s vehicle in accordance with Thompson. The court rejected the City’s argument that it was excepted from the stay under § 362(b)(3) and, on April 16, 2018, ordered sanctions of $50 per day beginning August 22, 2017 for the City’s violation of the stay. 8 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

After the City filed its opening appellate brief, Howard filed notice of his intention not to participate in the appeal. His counsel explained Howard’s bankruptcy case had been dismissed and the City disposed of his vehicle. He has since filed a new bankruptcy case to address his parking tickets but has abandoned interest in the vehicle that was the subject of the relevant Chapter 13 petition in the bankruptcy court be‐ low. However, “issues related to an alleged violation of the automatic stay” are not mooted by dismissal of a bankruptcy petition, Denby‐Peterson v. Nu2u Auto World, 595 B.R. 184, 188 (D.N.J. 2018); a court “must have the power to compensate victims of violations of the automatic stay and punish the vi‐ olators, even after the conclusion of the underlying bank‐ ruptcy case.” In re Johnson, 575 F.3d 1079, 1083 (10th Cir. 2009) (citing In re Davis, 177 B.R. 907, 911–12 (B.A.P. 9th Cir. 1995)). * * * In each of these four cases, the City appealed the bank‐ ruptcy courts’ orders finding the City violated the stay. These cases have been consolidated for appeal. II. Discussion The main question before us is whether the City is obli‐ gated to return a debtor’s vehicle upon her filing of a Chapter 13 bankruptcy petition, or whether the City is entitled to hold the debtor’s vehicle until she pays the fines and costs or until she obtains a court order requiring the City to turn over the vehicle. We review a bankruptcy court’s factual findings for clear error and conclusions of law de novo. In re Jepson, 816 F.3d 942, 945 (7th Cir. 2016). Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 9

A. The Automatic Stay Section 362(a)(3) of the Bankruptcy Code provides that a Chapter 13 bankruptcy petition “operates as a stay, applicable to all entities, of … any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” 11 U.S.C. § 362(a)(3) (emphasis added). We applied this provision to a very similar factual sit‐ uation in Thompson v. General Motors Acceptance Corp. There, a creditor seized a debtor’s car after he defaulted on payments. 566 F.3d at 700. The debtor filed a Chapter 13 petition and at‐ tempted to retrieve his car, but the creditor refused. Id. We considered two issues relating to § 362(a)(3): whether the creditor “exercised control” of property of the bankruptcy es‐ tate by failing to return the vehicle after the debtor filed for bankruptcy, and whether the creditor was required to return the vehicle prior to a court determination establishing the debtor could provide adequate protection for the creditor’s interest in the vehicle. Id. at 701. 1. “Exercise Control” First, we observed in Thompson there was no debate the debtor has an equitable interest in his vehicle, and “as such, it is property of his bankruptcy estate.” 566 F.3d at 701 (citing United States v. Whiting Pools, Inc., 462 U.S. 198, 203 (1983)); see 5 Collier on Bankruptcy ¶ 541.01 (16th ed. 2019) (“Congress’s intent to define property of the estate in the broadest possible sense is evident from the language of the statute which, in sec‐ tion 541(a)(1), initially defines the scope of estate property to be all legal or equitable interests of the debtor in property as of the commencement of the case, wherever located and by whomever held.”). We then rejected the creditor’s argument 10 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

that passively holding the asset did not satisfy the Code’s def‐ inition of exercising control: “Holding onto an asset, refusing to return it, and otherwise prohibiting a debtor’s beneficial use of an asset all fit within th[e] definition, as well as within the commonsense meaning of the word.” Thompson, 566 F.3d at 702. As we explained, limiting the reach of “exercising con‐ trol” to “selling or otherwise destroying the asset,” as the creditor proposed, did not fit with bankruptcy’s purpose: “The primary goal of reorganization bankruptcy is to group all of the debtor’s property together in his estate such that he may rehabilitate his credit and pay off his debts; this neces‐ sarily extends to all property, even property lawfully seized pre‐petition.” Id. (citing Whiting Pools, 462 U.S. at 203–04). Additionally, Congress amended § 362(a)(3) in 1984 to prohibit conduct that “exercise[d] control” over estate assets. We determined this addition suggested congressional intent to make the stay more inclusive by including conduct of “creditors who seized an asset pre‐petition.” Id.; see In re Javens, 107 F.3d 359, 368 (6th Cir. 1997) (“The fact that ‘to ob‐ tain possession’ was amended to ‘to obtain possession … or to exercise control’ hints [] that this kind of ‘control’ might be a broadening of the concept of possession … It could also have been intended to make clear that [§ 362](a)(3) applied to property of the estate that was not in the possession of the debtor.” (first alteration in original)); In re Del Mission Ltd., 98 F.3d 1147, 1151 (9th Cir. 1996) (The 1984 amendment “broaden[ed] the scope of § 362(a)(3) to proscribe the mere knowing retention of estate property.”). We therefore held that in retaining possession of the car, the creditor violated the automatic stay in § 362(a)(3). Thompson, 566 F.3d at 703. Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 11

2. Compulsory Turnover Next, we concluded § 362(a)(3) becomes effective immedi‐ ately upon filing the petition and is not dependent on the debtor first bringing a turnover action. Id. at 707–08. In so con‐ cluding, we relied on a plain reading of §§ 363(e) and 542(a) and the Supreme Court’s decision in Whiting Pools. Section 363(e) provides: [O]n request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased … by the trustee, the court, with or without a hearing, shall prohibit or con‐ dition such use, sale, or lease as is necessary to provide adequate protection of such interest. 11 U.S.C. § 363(e). The creditor acknowledged, and we agreed, that it has the burden of requesting protection of its interest in the asset under § 363(e). “However, if a creditor is allowed to retain possession, then this burden is rendered meaningless—a creditor has no incentive to seek protection of an asset of which it already has possession.” Thompson, 566 F.3d at 704. For § 363(e) to have meaning then, the asset must be returned to the estate prior to the creditor seeking protec‐ tion of its interest. Id.; cf. In re Sharon, 234 B.R. 676, 684 (B.A.P. 6th Cir. 1999) (“[T]he Bankruptcy Code does not elevate [the creditor’s] adequate protection right above the Chapter 13 debtor’s right to possession and use of a car.”). Moreover, § 542(a) “indicates that turnover of a seized as‐ set is compulsory.” Thompson, 566 F.3d at 704. Section 542(a) requires that a creditor in possession of property of the estate “shall deliver to the trustee, and account for, such property or 12 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

the value of such property, unless such property is of incon‐ sequential value or benefit to the estate.” 11 U.S.C. § 542(a) (emphasis added). We observed that a majority of courts had found § 542(a) worked in conjunction with § 362(a) “to draw back into the estate a right of possession that is claimed by a lien creditor pursuant to a pre‐petition seizure; the Code then substitutes ‘adequate protection’ for possession as one of the lien creditor’s rights in the bankruptcy case.” Thompson, 566 F.3d at 704 (quoting Sharon, 234 B.R. at 683). Because “[t]he right of possession is incident to the automatic stay,” id., the creditor must first return the asset to the bankruptcy estate. Only then is “the bankruptcy court [] empowered to condition the right of the estate to keep possession of the asset on the provision of certain specified adequate protections to the creditor.” Id.; see also 11 U.S.C. § 362(d)(1) (“On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under [§ 362](a) … for cause, including the lack of adequate protection of an interest in property ….”). The Supreme Court indicated as much in Whiting Pools when it explained that a “creditor with a se‐ cured interest in property included in the estate must look to [§ 363(e)] for protection, rather than to the nonbankruptcy remedy of possession.” 462 U.S. at 204 (emphasis added). 3. Thompson Controls Applying Thompson to the facts before us, we conclude, as each bankruptcy court did, that the City violated the auto‐ matic stay pursuant to § 362(a)(3) by retaining possession of the debtors’ vehicles after they declared bankruptcy. See In re Shannon, 18‐bk‐04116, Mem. Op. at 11 (Bankr. N.D. Ill. Sept. 7, 2018), ECF No. 64 (“Thompson [] requires any secured creditor in possession of a debtor’s vehicle to return it immediately Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 13

and seek adequate protection ….”); In re Peake, 18‐bk‐16544, Mem. Op. at 3 (Bankr. N.D. Ill. Aug. 15, 2018), ECF No. 40 (“[T]he City’s conduct in retaining possession of the vehicle violates [§] 362(a)(3) as that section has been interpreted … in Thompson ….”); In re Fulton, 18‐bk‐02860, Mem. Op. at 2 (Bankr. N.D. Ill. May 25, 2018), ECF No. 39 (“[T]he City is cir‐ cumventing entirely the procedural burden imposed on it by Thompson and the protections provided to debtors by the au‐ tomatic stay.”); In re Howard, 17‐bk‐25141, Mem. Op. at 10 (Bankr. N.D. Ill. Apr. 16, 2018), ECF. No. 63 (“[Section 362(a)] does not authorize continued possession of impounded vehi‐ cles in contravention of the Thompson ruling.”). The City was required to return debtors’ vehicles and seek protection within the framework of the Bankruptcy Code rather than through “the nonbankruptcy remedy of possession.” Whiting Pools, 462 U.S. at 204. The City acknowledges Thompson controls but asks us to overrule Thompson for three reasons: (1) property impounded prior to bankruptcy is not property of the bankruptcy estate because the debtors did not have a possessory interest in their vehicles at the time of filing; (2) the stay requires creditors to maintain the status quo and not take any action, such as re‐ turning property to the debtor, so the onus is on the debtor to move for a turnover action to retrieve her vehicle; and (3) the plain language of § 362(a)(3) requires an “act” to exercise con‐ trol, and passive retention of the vehicle is not an “act.” We decline the City’s request; Thompson considered and rejected these arguments. More fundamentally, the City’s ar‐ guments ignore the purpose of bankruptcy—“to allow the debtor to regain his financial foothold and repay his credi‐ 14 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

tors.” Thompson, 566 F.3d at 706; see also 5 Collier on Bank‐ ruptcy ¶ 541.01 (“[The] central aggregation and protection of property [] promote[s] the fundamental purposes of the Bank‐ ruptcy Code: the breathing room given to a debtor that at‐ tempts to make a fresh start, and the equality of distribution of assets among similarly situated creditors according to the priorities set forth within the Code.”). To effectively do so, a debtor must be able to use his assets “while the court works with both debtor and creditors to establish a rehabilitation and repayment plan.” Thompson, 566 F.3d at 707; see also Whit‐ ing Pools, 462 U.S. at 203 (“[T]o facilitate the rehabilitation of the debtor’s business, all the debtor’s property must be in‐ cluded in the reorganization estate.”). This is why § 542 com‐ pels the return of property to the estate, including “property in which the debtor did not have a possessory interest at the time the bankruptcy proceedings commenced.” Whiting Pools, 462 U.S. at 205; see In re Weber, 719 F.3d 72, 79 (2d Cir. 2013) (“Whiting Pools teaches that the filing of a petition will gener‐ ally transform a debtor’s equitable interest into a bankruptcy estate’s possessory right in the vehicle.”). Thus, contrary to the City’s argument, the status quo in bankruptcy is the return of the debtor’s property to the estate. In refusing to return the vehicles to their respective estates, the City was not passively abiding by the bankruptcy rules but actively resisting § 542(a) to exercise control over debtors’ vehicles. What’s more, the position we took in Thompson brought our Circuit in line with the majority rule, held by the Second, Eighth, and Ninth Circuits. See Weber, 719 F.3d 72; Del Mission 98 F.3d 1147; In re Knaus, 889 F.2d 773 (8th Cir. 1989). Alt‐ hough the Tenth Circuit recently adopted the City’s view, see In re Cowen, 849 F.3d 943 (10th Cir. 2017), that position is still Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 15

the minority rule. Our reasoning in Thompson continues to re‐ flect the majority position and we believe it is the appropriate reading of the bankruptcy statutes. At bottom, the City wants to maintain possession of the vehicles not because it wants the vehicles but to put pressure on the debtors to pay their tickets. That is precisely what the stay is intended to prevent.1 The City, though, pleads necessity; it claims that, without retaining possession, it is helpless to prevent the loss or de‐ struction of the vehicles. It did not attempt in any of these cases, however, to seek adequate protection of its interests through the methods available under the Bankruptcy Code, and at oral argument, the City asserted it did not have “the opportunity” to request such protection before the bank‐ ruptcy courts ordered it to return the vehicles. The record be‐ lies this statement. In each case, the parties engaged in motion practice, often over the course of months, before the courts held the City to be in violation of the stay. At any point the City could have sought adequate protection of its interests, but it chose not to avail itself of the Code’s available proce‐ dures. See, e.g., 11 U.S.C. § 362(d)(1) (court may relieve credi‐ tor from the stay if debtor cannot adequately protect credi‐ tor’s interest in the property); id. § 362(f) (court may relieve creditor from stay “as is necessary to prevent irreparable damage to the interest of an entity in property”); id. § 363(e) (creditor may request court to place limits or conditions on

1 The In re Shannon court further found that § 362(a)(4) and (a)(6) also

prohibit the City’s continued retention of debtors’ vehicles. Because the City is bound by the stay under § 362(a)(3), we do not reach the applica‐ bility of the additional stay provisions. 16 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

trustee’s power to use, sell, or lease property to protect credi‐ tor’s interest). We recognize that once the City complies with the auto‐ matic stay and immediately turns over vehicles, it will need to seek protection on an expedited basis. Though we leave it to the City and the bankruptcy courts to fashion the precise procedure for doing so, we note the following: The City will have notice of the bankruptcy petition when the debtor re‐ quests her vehicle, if not sooner. At that time, the City may immediately file an emergency motion for adequate protec‐ tion of its interest in a debtor’s vehicle, which may be heard within a day or so, and the City can even file such motions ex parte if necessary. See id. § 363(e); Fed. R. Bankr. P. 4001(a)(2); see also 11 U.S.C. § 362(d)(1), (f); Bankr. N.D. Ill. R. 9013‐ 9(B)(9)(d) (motion for relief from stay under § 362 where mo‐ vant alleges security interest in vehicle “ordinarily [] granted without hearing”). It will be the rare occasion where a single day’s delay will have lost the City the value of its security. Regardless, the Code is clear that it is the creditor’s obligation to come to court and ask for protection, not, as the City advo‐ cates, the debtor’s obligation to file an adversary proceeding against every creditor holding her property at the time she files for bankruptcy. Cf. In re Lisse, 921 F.3d 629, 639 (7th Cir. 2019) (“The basic premise [of Chapter 13] is to facilitate the debtor’s ability to pay his creditors ….”). The City’s argument that it will be overburdened with re‐ sponding to Chapter 13 petitions is ultimately unavailing; any burden is a consequence of the Bankruptcy Code’s focus on protecting debtors and on preserving property of the estate for the benefit of all creditors. It perhaps also reflects the im‐ portance of vehicles to residents’ everyday lives, particularly Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 17

where residents need their vehicles to commute to work and earn an income in order to eventually pay off their fines and other debts.2 It is not a reason to permit the City to ignore the automatic stay and hold captive property of the estate, in con‐ travention of the Bankruptcy Code. Furthermore, if a debtor files a bankruptcy petition in bad faith and immediately dismisses her case, as the City claims many debtors do solely to retrieve their impounded vehicles, the City has recourse: it may file a bad faith motion against the debtor. If the court finds bad faith, it may immediately

2 We additionally note that the “flood” of Chapter 13 filings is evi‐

dence of the disproportionate effect of the City’s traffic fines and fees on its low‐income residents, an issue that is not unique to Chicago. See, e.g., Maura Ewing, Should States Charge Low‐Income Residents Less for Traffic Tickets?, The Atlantic (May 13, 2017), https://www.theatlantic.com/poli‐ tics/archive/2017/05/traffic‐debt‐california‐brown/526491/ (California); Sam Sanders, Study Finds The Poor Subject To Unfair Fines, Driverʹs License Suspensions, NPR: The Two‐Way (Apr. 9, 2015), https://www.npr.org/sec‐ tions/thetwo‐way/2015/04/09/398576196/study‐find‐the‐poor‐subject‐to‐ unfair‐fines‐drivers‐license‐suspensions (Missouri and California); Melissa Sanchez & Sandhya Kambhampati, How Chicago Ticket Debt Sends Black Motorists Into Bankruptcy, ProPublica Illinois (Feb. 27, 2018), https://features.propublica.org/driven‐into‐debt/chicago‐ticket‐debt‐ bankruptcy/ (“[African‐American] neighborhoods account for 40 percent of all debt, though they account for only 22 percent of all the tickets issued in the city over the past decade—suggesting how the debt burdens the poor.”); see also Torie Atkinson, Note, A Fine Scheme: How Municipal Fines Become Crushing Debt in the Shadow of the New Debtorsʹ Prisons, 51 Harv. C.R.‐C.L. L. Rev. 189, 217–22 (2016) (“The consequences of fines and fees can be dramatic and unforgiving: unemployment, loss of transportation, homelessness, loss of government or community services, and poor credit. And without the ability to accumulate wealth or capture even the smallest windfall for themselves, the poor become poorer, unable to climb out of an economic chasm.”). 18 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

dismiss the case and may even sanction the debtor. 11 U.S.C. § 1307(c); see, e.g., Lisse, 921 F.3d at 639–41 (affirming sanctions and dismissal of Chapter 13 petition filed in bad faith to col‐ laterally attack state court judgment); In re Bell, 125 F. App’x 54, 57 (7th Cir. 2005) (affirming dismissal of Chapter 13 peti‐ tion with prejudice where debtors filed multiple petitions “solely to impede the foreclosure sale” of their home). B. Exceptions to the Stay The City next argues that even if the stay applies, it is ex‐ cepted under § 362(b)(3) and (b)(4). “We construe the Bank‐ ruptcy Code ‘liberally in favor of the debtor and strictly against the creditor.’” Village of San Jose v. McWilliams, 284 F.3d 785, 790 (7th Cir. 2002) (quoting In re Brown, 108 F.3d 1290, 1292 (10th Cir. 1997)). The automatic stay is “one of the fundamental debtor protections provided by the bankruptcy laws.” Midlantic Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474 U.S. 494, 503 (1986) (quoting S. Rep. No. 95–989, at 54 (1978), re‐ printed in 1978 U.S.C.C.A.N. 5787, 5840). We therefore nar‐ rowly construe exceptions “to give the automatic stay its in‐ tended broad application.” In re Grede Foundries, Inc., 651 F.3d 786, 790 (7th Cir. 2011); see In re Stringer, 847 F.2d 549, 552 (9th Cir. 1988) (“Congress clearly intended the automatic stay to be quite broad. Exemptions to the stay, on the other hand, should be read narrowly to secure the broad grant of relief to the debtor.” (footnotes omitted)). Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 19

1. Section 362(b)(3) Section 362(b)(3) provides that a Chapter 13 bankruptcy petition does not operate as a § 362(a) automatic stay: of any act to perfect, or to maintain or con‐ tinue the perfection of, an interest in prop‐ erty to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) of [the Bankruptcy Code] or to the extent that such act is accomplished within the period provided under section 547(e)(2)(A) of [the Bankruptcy Code]. 11 U.S.C. § 362(b)(3). Section 546(b) limits a trustee’s power to avoid a nonperfected lien by making that power subject to any nonbankruptcy law that “permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection,” or “pro‐ vides for the maintenance or continuation of perfection of an interest in property to be effective against an entity that ac‐ quires rights in such property before the date on which action is taken to effect such maintenance or continuation.” 11 U.S.C. § 546(b)(1). The classic example of this exception is for a cred‐ itor who has a grace period for perfecting its interest, such as under the Uniform Commercial Code. See 3 Collier on Bank‐ ruptcy ¶ 362.05 (explaining § 362(b)(3) permits a purchase‐ money secured creditor to retroactively perfect under the twenty‐day grace period provided in Article 9 of the U.C.C. and permits the filing of continuations of financing state‐ ments under U.C.C. § 9‐515). As the In re Shannon court explained, through §§ 362(b)(3) and 546(b), “Congress sought only to prevent a trustee from 20 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

avoiding the lien of a creditor when only the intervening bankruptcy stopped the creditor from perfecting or continu‐ ing perfection of its lien.” Thus, the purpose of these sections is to prevent creditors from losing their lien rights because of the bankruptcy; they do not permit creditors to retain posses‐ sion of debtors’ property. Indeed, if the nonbankruptcy law requires a creditor to seize property after the filing of a bank‐ ruptcy petition to perfect or maintain the perfection of a lien, § 546(b)(2) replaces the seizure requirement with the giving of notice. See 3 Collier on Bankruptcy ¶ 362.05. “This assures that the trustee’s right to maintain possession of the property will be unaffected by the creditor’s right to perfect its inter‐ est.” Id. And the (b)(3) exception permits a creditor to give no‐ tice under § 546(b)(2) without violating the automatic stay. Here, the City argues the Chicago Municipal Code (a non‐ bankruptcy law) gives it the right to retain possession of a debtor’s vehicle until the debt is paid, thereby creating a pos‐ sessory lien on the vehicle. See, e.g., M.C.C. §§ 9‐92‐080(f), 9‐ 100‐120(b)–(c). It further asserts it must retain the vehicle to maintain perfection of its lien. First, as to perfection, it is commonly understood that an interest in property is perfected when it is valid against other creditors who have an interest in the same property. See Per‐ fection, Black’s Law Dictionary (11th ed. 2019). The City’s con‐ tinued possession of a debtor’s vehicle is one way to perfect its lien because it can demand the amount owed to it from any holder of an interest in the vehicle before it gives up posses‐ sion, be that the debtor or another lienholder asserting its right to possession of the vehicle. See M.C.C. § 9‐92‐080(a), (c). However, possession is not the only way to perfect; the City can also perfect its lien by filing notice of its interest in the Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 21

vehicle, such as with the Secretary of State or the Recorder of Deeds. And the Chapter 13 plan, itself, provides a public rec‐ ord of secured liens. See 11 U.S.C. § 1325(a)(5) (regarding the rights of secured creditors related to confirmation of the plan). Thus, the City does not need to retain possession of the vehi‐ cle to maintain perfection of its lien. Second, despite its arguments to the contrary, the City’s possessory lien is not destroyed by its involuntary loss of pos‐ session due to forced compliance with the Bankruptcy Code’s automatic stay. The City did not indicate any intent to aban‐ don or release its lien, so its possessory lien survives its loss of possession to the bankruptcy estate. See In re Estate of Miller, 556 N.E.2d 568, 572 (Ill. App. Ct. 1990) (“The law respecting common law retaining liens is that the involuntary relinquish‐ ment of retained property pursuant to a court order does not result in the loss of the lien.”); see also In re Borden, 361 B.R. 489, 495 (B.A.P. 8th Cir. 2007) (“[I]nvoluntary loss of posses‐ sion does not defeat the [] lien.”); Restatement (First) of Secu‐ rity § 80 cmt. c (1941) (“The lien is a legal interest dependent upon possession. Where the lienor voluntarily gives up the possession, his lien, at least so far as it is a legal interest, is gone. The lienor … does not lose his legal interest if he is de‐ prived without his consent of his possession.”).3

3 The City’s attempt to distinguish between loss of possession due to

compliance with a court order versus compliance with the automatic stay is in vain. Section 362 provides for the imposition of punitive damages for willful violations of the automatic stay. See 11 U.S.C. § 362(k)(1). This demonstrates that failure to comply with the stay may be punished even more severely than failure to comply with a court order and, correspond‐ ingly, there is no question the stay compels the City to return the vehicles. 22 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

Because the City does not lose its perfected lien via the in‐ voluntary loss of possession of the debtors’ vehicles to the bankruptcy estates, § 362(b)(3) does not apply to except it from the stay. To the extent the City has any doubt about the continuation of its lien, when it requests relief from the auto‐ matic stay and adequate protection, it could also ask the bank‐ ruptcy court to include in its order a notation of the City’s continuing lien on the property. 2. Section 362(b)(4) Alternatively, the City looks to § 362(b)(4) to except it from the stay. That section provides that a Chapter 13 bankruptcy petition does not operate as a § 362(a) automatic stay: of the commencement or continuation of an action or proceeding by a governmental unit … to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judg‐ ment other than a money judgment, ob‐ tained in an action or proceeding by the gov‐ ernmental unit to enforce such governmen‐ tal unit’s … police or regulatory power. 11 U.S.C. § 362(b)(4). “This exception has been narrowly con‐ strued to apply to the enforcement of state laws affecting health, welfare, morals and safety, but not to ‘regulatory laws that directly conflict with the control of the res or property by the bankruptcy court.’” In re Cash Currency Exch., Inc., 762 F.2d 542, 555 (7th Cir. 1985) (quoting In re Missouri, 647 F.2d 768, 776 (8th Cir. 1981)). The City asserts its impoundment of ve‐ hicles is an exercise of its police power to enforce traffic regu‐ lations as a matter of public safety. The debtors respond that Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 23

the impoundment of vehicles enhances the City’s revenue col‐ lection rather than protects public safety, and it is therefore an enforcement of a money judgment which § 362(b)(4) does not permit. Courts apply two tests to determine whether a state’s ac‐ tions fall within the scope of § 362(b)(4)—the pecuniary pur‐ pose test and the public policy test. Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 385–86 (6th Cir. 2001); In re First All. Mortg. Co., 263 B.R. 99, 107–08 (B.A.P. 9th Cir. 2001). Satisfying either test is sufficient for the exception to apply. See First All. Mortg., 263 B.R. at 108; see also 3 Collier on Bankruptcy ¶ 362.05. The pecuniary purpose test requires the court to “look to what specific acts the government wishes to carry out and de‐ termine if such execution would result in an economic ad‐ vantage over third parties in relation to the debtor’s estate.” Solis v. Caro, No. 11‐cv‐6884, 2012 WL 1230824, at *5 (N.D. Ill. Apr. 12, 2012) (quoting In re Emerald Casino, Inc., No. 03‐cv‐ 05457, 2003 WL 23147946, at *8 (N.D. Ill. Dec. 24, 2003)). “[I]f the focus of the police power is directed at the debtor’s finan‐ cial obligations rather than the [government’s] health and safety concerns, the automatic stay is applicable.” In re Ellis, 66 B.R. 821, 825 (N.D. Ill. 1986) (quoting In re Sampson, 17 B.R. 528, 530 (Bankr. D. Conn. 1982)). Though the City says its im‐ poundment laws are “designed to further the safety and wel‐ fare of Chicago residents” with just an “ancillary pecuniary benefit,” we disagree. In retaining possession of the vehicles until it is paid in full, the City is “attempting to satisfy a debt outside the bankruptcy process,” which would give it an ad‐ vantage over other parties interested in the debtors’ estates. 24 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

Emerald Casino, 2003 WL 23147946, at *9. The City’s act is fo‐ cused on the debtor’s financial obligation, not its safety con‐ cerns, and thus fails the pecuniary purpose test. Alternatively, the public policy test considers whether the state action is principally to effectuate public policy or to ad‐ judicate private rights. Hosp. Staffing Servs., 270 F.3d at 385– 86; Caro, 2012 WL 1230824, at *4. The public policy the City highlights is enforcing its traffic ordinances against repeat of‐ fenders “for the safety and convenience of the public.” It ex‐ plains the traffic ordinance system gradually escalates, begin‐ ning with the issuance of fines then intensifying to immobili‐ zation and impoundment only after an individual ignores re‐ peat citations. Without impoundment as a general deterrence, the City argues, it cannot enforce its traffic regulations. See Emerald Casino, 2003 WL 23147946, at *6. The debtors argue the balance between revenue collection and public safety weighs heavily toward the former. Addi‐ tionally, prior to the 2016 Municipal Code amendment impos‐ ing a possessory lien on impounded vehicles, the City re‐ leased impounded vehicles to Chapter 13 debtors. When the City recently amended the Code, it did not mention public safety concerns but rather stated the amendment was “in re‐ sponse to a growing practice of individuals attempting to es‐ cape financial liability for their immobilized or impounded vehicles.” Chi., Ill., Ordinance, Amendment of M.C.C. § 9‐ 100‐120 (July 6, 2017). We are persuaded that, on balance, this is an exercise of revenue collection more so than police power. As debtors ob‐ serve, a not insignificant portion of the City’s annual operat‐ ing fund comes from its collection of parking and traffic tick‐ ets. See City of Chicago, 2019 Budget Overview 29, 192 (2018), Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 25

https://chicago.legistar.com/View.ashx?M=F&ID=6683992& GUID=CAEFBC7F‐7C1A‐4B2E‐9F8B‐0CB931B3EE88 (fines, forfeitures, and penalties—primarily from parking tickets— constitute approximately nine percent of the 2019 fund). Moreover, the kind of violations the City enforces are not tra‐ ditional police power regulations; these fines are for parking tickets, failure to display a City tax sticker, and minor moving violations. Even tickets for a suspended license, a seemingly more serious offense, are often the result of unpaid parking tickets and are thus not related to public safety. And the City impounds vehicles regardless of what violations the owner has accrued, without distinguishing between more serious vi‐ olations that could affect public safety versus the mere failure to pay for parking. Most notably, the City imposes the mone‐ tary penalty on the owner of the vehicle, not the driver, which signals a seeming disconnect if the City actually has safety concerns about the offending driver. As the ordinance amending M.C.C. § 9‐100‐120 demonstrates, the City’s focus is on the financial liability of vehicle owners, not on public safety. But even if we assume that the adjudication of these viola‐ tions is the result of the City’s exercise of police and regula‐ tory power, the City cannot enforce these final determinations of liability if they are “money judgment[s]” as the term is used in § 362(b)(4). See S. Rep. No. 95‐989, at 52 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5838 (“Since the assets of the debtor are in the possession and control of the bankruptcy court, and … constitute a fund out of which all creditors are entitled to share, enforcement by a governmental unit of a money judg‐ ment would give it preferential treatment to the detriment of all other creditors.”). A judgment is a “money judgment” that cannot be enforced without violating the automatic stay if it 26 Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023

requires payment. 3 Collier on Bankruptcy ¶ 362.05 (“[T]he governmental unit still may commence or continue any police or regulatory action, including one seeking a money judg‐ ment, but it may enforce only those judgments and orders that do not require payment.” (emphasis added)); First All. Mortg., 263 B.R. at 107 (same); see also 3 Collier on Bankruptcy ¶ 362.05 (“Although a governmental unit may obtain a liability deter‐ mination, it may not collect on any monetary judgment re‐ ceived.” (emphasis added)); SEC v. Brennan, 230 F.3d 65, 71 (2d. Cir. 2000) (“[Section] 362(b)(4) permits the entry of a money judgment against a debtor … [but] anything beyond the mere entry of a money judgment against a debtor is prohibited by the automatic stay.”). The City claims it did not have money judgments “be‐ cause it did not pursue the additional steps required to turn the citations into money judgments in the circuit court.” We disagree. A “money judgment” is simply an order that iden‐ tifies “the parties for and against whom judgment is being en‐ tered” and “a definite and certain designation of the amount … owed.” Penn Terra Ltd. v. Dep’t of Envtl. Res., 733 F.2d 267, 275 (3d Cir. 1984). Prior to impounding a vehicle, the City must administratively adjudicate the debtor’s violations, see M.C.C. § 9‐100‐010, 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 au‐ thorize the City to impound the vehicle until the debtor pays the judgments and related costs and fees. See id. §§ 2‐14‐ 132(c)(1)(A), 9‐92‐080, 9‐100‐120(b). So, without any addi‐ tional steps, the City had final determinations of liability re‐ quiring these particular debtors to pay it specific sums. Nos. 18‐2527, 18‐2793, 18‐2835, & 18‐3023 27

The City does not contest that it conditioned the release of the debtors’ vehicles on payment of the amount specified in the final determinations of liability. Cf. id. § 9‐100‐100(b) (“Any fine and penalty … remaining unpaid after the notice of final determination of liability is sent shall constitute a debt due and owing the city ….”). The continued possession of the vehicles is the City’s attempt to short‐circuit the state court collection process and to enforce final judgments requiring monetary payment from the debtors. As such, the City is not excepted from the stay under § 362(b)(4). That the City is not excepted under § 362(b)(4) does not “permit[] debtors to park for free wherever they like, or to drive without a risk of fines for moving violations ….” In re Steenes, 918 F.3d 554, 558 (7th Cir. 2019). This just means the City needs to satisfy the debts owed to it through the bankruptcy process, as do all other creditors. III. Conclusion For the foregoing reasons, we AFFIRM the judgments of the bankruptcy courts.