Illinois: Seventh Circuit Orders Return Of Impounded Cars

Officials in Chicago, Illinois, have been breaking federal law by confiscating cars from motorists who have filed for bankruptcy protection. That was the ruling Wednesday by the Seventh Circuit US Court of Appeals, which upheld the same finding made by a federal bankruptcy judge last year (view 2018 ruling).

The Windy City has been holding cars hostage as a means of coercing payment of as few as two unpaid parking tickets or photo enforcement citations. The policy went too far by grabbing cars from people who did not have the funds to pay the tickets and were forced to file for Chapter 13 bankruptcy. Under federal law, the bankruptcy filing imposes an automatic stay on creditors, which requires return of the impounded vehicle. The city made a change to the city code in 2016 adding a “possessory lien” to impounded vehicles as a way of evading the bankruptcy code. The three-judge appellate panel said the municipal code does not override federal law.

“We conclude, as each bankruptcy court did, that the city violated the automatic stay pursuant to Section 362(a)(3) by retaining possession of the debtors’ vehicles after they declared bankruptcy,” Judge Joel Martin Flaum wrote for the court. “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.”