By Katherine Hyunjung Lee
Costly parking tickets are causing thousands of cash-strapped Chicago drivers to flock to the federal bankruptcy court to get their vehicles released from city auto pounds.
Of the 8,809 Chapter 13 consumer bankruptcy filings that attorney Tom Vaughn, a Chapter 13 Bankruptcy Trustee in Chicago, oversaw in 2016, 47 percent listed the Chicago Parking Bureau as a creditor, according to Vaughn’s office.
This peculiar rush to bankruptcy protection helped cause the Bankruptcy Court in the Northern District of Illinois to receive the highest number of non-business chapter 13 filings in the nation for at least the third consecutive year.
Despite this continuing phenomenon in Chicago, consumer bankruptcy filings are decreasing, both here and nationwide. In the Northern District of Illinois, the number of consumers filing for protection under chapter 13 bankruptcy, also known as the “wage earner plan” for allowing debtors to develop gradual repayment plans, declined 1.2 percent between 2015 and 2016, according to the court. Similarly, those filing here for total liquidation of assets under chapter 7 bankruptcy declined by 10.4 percent.
The decrease in the district’s chapter 13 consumer filings to 19,721 from 19,954 was a turnaround from five years of increases running counter to the nationwide trend, while the decline in chapter 7 consumer bankruptcies to 23,372 from 26,082 followed a continuing trend from 2010, nationwide as well as here.
The outcome is partly due to a better economy, Joseph A. Baldi, an attorney and Chapter 7 Trustee in the Northern District of Illinois, said in an interview. “If people are paying their bills, they’re going to be okay. [A bankruptcy] is not the first thing you want to do.”
R. Scott Alsterda, former chair of the Bankruptcy and Reorganization Committee of the Chicago Bar Association, has been a Chapter 7 Trustee since 2002.
“There were amendments to the Bankruptcy Code in 2005, so there was a surge in bankruptcy filings at that time leading up to the change,” Alsterda said. “The recession beginning in 2007 also brought an increase in cases in the following years. In 2012, the number of cases leveled off.”
Glenn Stearns, a Chapter 13 Trustee, said, “we cycled through most of the people that were harmed by the housing crisis.”
According to the U.S. Bankruptcy Courts, non-business Chapter 13 filings decreased 26.8 percent nationwide over the past five years from 2011 to 2016. But in the Northern District of Illinois, non-business Chapter 13 filings increased 35 percent between 2011 and 2016.
“We have a lot more bankruptcies driven by parking tickets in Cook County,” Stearns said. “Who would think bankruptcy filings would be driven by parking tickets?”
Debt from Parking Tickets
The City of Chicago and Cook County have aggressive approaches on vehicle citations with punitive fines, according to Stearns. The fines and costs can easily mount up to more than $4,000 if a driver doesn’t have ready cash, said Mark Wheeler, an attorney in the office of Trustee Vaughn.
Stearns said Chicago is known for issuing expensive parking tickets, which often result in dismayed drivers seeing their cars impounded and licenses suspended. In 2015, DNAinfo used figures from the City of Chicago and New York City’s Department of Finance to report that Chicago had $1.5 billion in unpaid ticket debt for parking, red light and speed camera violations, compared to New York City’s $756 million, despite the facts New York City issued an average of 10 million parking tickets per year, while Chicago issued an average of 4 million.
In 2014, the Chicago problem became the target of bankruptcy fraud, with fraud practitioners on the street helping people fill out makeshift Chapter 7 bankruptcy petitions to show the auto pounds and have their cars released without paying tickets.
The petitions were “pro se” filings, or cases filed without attorneys, that would often be quickly dismissed by the court. In January 2015, the FBI arrested Daniel Rankins, who pleaded guilty to bankruptcy fraud. In a 2015 article, the Chicago Tribune reported that in the duration of two months in 2014, more than 1000 cases had been filed listing only the city’s Revenue Department and the city’s auto pounds as creditors.
The City of Chicago consequently partnered up with the court-appointed Bankruptcy Trustees to require that impounded cars could not be released unless given permission by the Trustee, according to Alsterda.
“I don’t think I’ve seen those cases for about six months now,” Alsterda said. “They arrested one of the people who was behind that whole scheme.”
Still, Cook County’s Chapter 13 Trustees have two of the largest total caseloads in the country, according to Stearns. Stearns, who oversees the five collar counties bordering Cook County, said that fewer than 10 percent of chapter 13 bankruptcies in the suburbs last year were caused by parking tickets.
A recent announcement from the City of Chicago stated that the city will no longer automatically return impounded vehicles to owners upon filing for bankruptcy, signaling potential changes in chapter 13 filings in the near future. As of January, the city has offered a hardship payment plan for senior citizens, students and others who qualify.
Bankruptcy, Not Always the Solution
Despite last year’s decrease, the Northern District of Illinois still had 44,196 non-business filings in 2016, far more than other districts with major cities. The Southern District of New York, covering Manhattan, the Bronx and nearby suburbs, had 6,921 non-business bankruptcy filings in 2016, while the Central District of California, in Los Angeles, had 39,714.
In 2016 a total of 794,960 business and non-business cases were filed in federal bankruptcy courts nationwide, down 5.9 percent from the 844,495 filed in 2015. Chapter 13 cases decreased 1.7 percent, while the number of Chapter 7 cases went down by 8.4 percent.
“The percentage of Chapter 13 tends to go up over the years, but that’s just the demand effect,” Robert M. Lawless, professor of law at the University of Illinois at Urbana-Champaign, said in an interview. “There’s less demand for bankruptcies in general.”
A decrease in overall bankruptcy filings also may not necessarily indicate that people are much better off, according to Ed Flynn, a consultant at the American Bankruptcy Institute. “It may mean that the bankruptcy is not going to help them with the type of debt that they have.”
While fewer homeowners are filing for bankruptcy, both chapter 7 and 13 trustees are seeing more debtors struggling with student debt. According to the Federal Reserve Bank of New York, the student debt in the U.S. amounted to $1.26 trillion at the end of the third quarter of 2016. Student loans are generally not dischargeable by bankruptcy. A bankruptcy filing for people with student loans can take pressure off their other finances but in most cases, the student loan remains.
“Chapter 7 doesn’t really help those people,” Alsterda said. “It’s amazing how much student debt is in there but not getting discharged.”
“Student loans are the next big bubble,” Stearns said. “It’s in the news, and it’s going to stay in the news for a while.”