498 B.R. 201
Bankr. N.D. Ill.2013Background
- Vermeer obtained a $17,197.66 Illinois judgment against Tires N Tracks, Inc. on December 6, 2011, and served a citation to discover assets on March 9, 2012; a citation examination occurred January 29, 2013 and the citation was continued to February 26, 2013.
- The debtor filed a Chapter 7 petition on February 11, 2013; Vermeer moved to dismiss the citation and the citation was dismissed on February 26, 2013.
- Vermeer filed Proof of Claim No. 3 on April 2, 2013 asserting a secured claim in the debtor’s personal property by virtue of the citation.
- Laser obtained a $68,463 judgment against the debtor on September 19, 2012 and served its citation to discover assets on September 26, 2012, creating a junior lien.
- Laser objected to Vermeer’s secured claim, arguing Vermeer voluntarily dismissed its citation and thereby relinquished the citation lien and secured status.
- The bankruptcy court sustained Laser’s objection, finding Vermeer voluntarily dismissed the citation, waived any § 108(c) tolling, and thereby lost secured status.
Issues
| Issue | Plaintiff's Argument (Laser) | Defendant's Argument (Vermeer) | Held |
|---|---|---|---|
| Did Vermeer voluntarily dismiss its citation such that its lien expired? | Dismissal was voluntary; Vermeer could have sought stay relief instead of dismissing. | Dismissal was compelled by the automatic stay of § 362, not voluntary. | Court: Dismissal was voluntary because Vermeer had alternatives (move to modify stay); lien terminated. |
| Does 11 U.S.C. § 108(c) toll the citation period and preserve Vermeer’s lien? | § 108(c) cannot preserve a lien once the creditor voluntarily terminated the underlying proceeding. | § 108(c) automatically preserves pending citation liens through the bankruptcy. | Court: Vermeer waived any § 108(c) tolling by dismissing the citation; no tolling applies. |
| Is secured status fixed as of the petition date despite post-petition actions? | — (Laser contends post-petition voluntary relinquishment can change status) | Vermeer: secured status is measured on petition date and remains. | Court: Though status is measured at petition date, a creditor may voluntarily relinquish lien after petition date; Vermeer did so. |
| May a creditor avoid violating stay only by dismissing its state proceeding? | Creditor had other options (seek stay relief or let citation lapse and claim tolling). | Dismissal was necessary to avoid stay violation. | Court: Creditor could have sought stay relief to preserve lien; dismissal was not required. |
Key Cases Cited
- Pierport Dev. & Realty, Inc. v. 491 B.R. 544 (Bankr. N.D. Ill. 2013) (burden-shifting on claim objections and § 108(c) preserves liens)
- In re Salem, 465 F.3d 767 (7th Cir. 2006) (proof of claim as prima facie evidence)
- West Bend Mut. Ins. Co. v. Belmont State Corp., 712 F.3d 1030 (7th Cir. 2013) (court authority to extend supplementary proceedings)
- Laborers’ Pension Fund v. Pavement Maint., Inc., 542 F.3d 189 (7th Cir. 2008) (extensions of state supplementary proceedings)
- Burditt & Radzius, Chtd. v. Brown (In re Barone), 184 B.R. 747 (N.D. Ill. 1995) (automatic termination of citation not guaranteed)
- In re Schwinn Bicycle Co., 200 B.R. 980 (Bankr. N.D. Ill. 1996) (creditor’s secured status measured at petition date)
- In re Metaldyne Corp., 409 B.R. 671 (Bankr. S.D.N.Y. 2009) (secured creditor may voluntarily change status post-petition)
- In re Coan, 96 B.R. 828 (Bankr. N.D. Ill. 1989) (valid liens do not expire during pendency of bankruptcy absent creditor action)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (general lien-relief principle cited)