575 B.R. 375
N.D. Ill.2017Background
- Tammy died intestate owning a Chicago parcel; her husband Jerome Sims asserted a surviving-spouse equitable interest in one-half of the property under Illinois law.
- Cook County held a tax sale on the property on August 7, 2013; Gan B, LLC won and received a certificate of purchase and paid subsequent taxes through 2015.
- Sims filed Chapter 13 on February 15, 2016 (after the tax sale but before the July 11, 2016 redemption deadline); he initially omitted real property on Schedule A/B but later amended schedules and confirmed a plan treating tax claims.
- Gan filed a state-court tax-deed petition and then moved in bankruptcy to lift the automatic stay after the redemption period expired, arguing inadequate protection (post-petition tax nonpayment and lack of hazard insurance) and that the property was not part of Sims’s estate at filing.
- The Bankruptcy Court denied Gan’s motion, finding Sims had a vested inheritance interest at death (included in the estate), Gan’s secured tax claim could be treated in the plan, and Gan’s interest was adequately protected; Gan appealed.
Issues
| Issue | Plaintiff's Argument (Gan) | Defendant's Argument (Sims) | Held |
|---|---|---|---|
| Whether Sims had an interest in the property included in the bankruptcy estate at filing | Sims had no vested ownership at filing because title arose only after probate and redemption elapsed | Sims had a vested equitable inheritance interest on Tammy’s death that became estate property under §541 | Court held Sims had a vested equitable interest at death; property was estate property at filing |
| Whether Gan’s tax claim was treatable in the confirmed Chapter 13 plan | The tax purchaser’s interest was not a secured claim subject to plan treatment if debtor lacked title at filing | Tax purchaser holds a secured claim (right to redemption amount) that can be treated under Chapter 13 when debtor’s interest is in estate | Court held Gan’s secured claim was amenable to plan treatment and redemption tolling applied while stay in effect |
| Whether Gan was entitled to relief from the automatic stay for lack of adequate protection because of post-petition tax nonpayment | Post-petition tax arrears and risk of another tax buyer erode Gan’s interest and constitute inadequate protection | Tax purchasers are not in privity; sale-in-error remedy and statutory protections adequately protect Gan; debtor can reallocate plan funds to pay taxes | Court held Gan was adequately protected; sale-in-error provides indubitable equivalent and no legal basis to require debtor to pay or insure property as a mortgagee would |
| Whether Gan was entitled to stay relief under general "for cause" balancing (Fernstrom factors) | Relief warranted to protect Gan’s interest | Maintaining stay favors debtor; lifting would prejudice estate and debtor more than Gan; Gan can seek sale-in-error | Court affirmed denial of stay under Fernstrom balancing (prejudice to estate and greater hardship on debtor outweighed Gan’s hardship) |
Key Cases Cited
- LaMont v. New York Life Ins. Co., 740 F.3d 397 (7th Cir.) (characterizes Illinois certificate of purchase as a nonrecourse tax lien and explains sale-in-error and bankruptcy treatment)
- Chenoweth v. United States, 3 F.3d 1111 (7th Cir.) (after-acquired property statute includes bequests and devise entitlements upon death)
- Yonikus v. Representative of Estate of Vic, 996 F.2d 866 (7th Cir.) (§541(a)(1) includes future and speculative interests in the bankruptcy estate)
- Matter of Fernstrom Storage & Van Co., 938 F.2d 731 (7th Cir.) (factors for "for cause" relief from automatic stay balancing prejudice, hardship, and probability of success)
- Butner v. United States, 440 U.S. 48 (1979) (state law determines nature and extent of debtor’s property interests for bankruptcy purposes)