In re Tires N Tracks, Inc.
MEMORANDUM OPINION
In this case, two Illinois judgment lien creditors are competing for priority as to the Debtor’s personal assets. As of the date of filing the Debtor’s bankruptcy petition, both creditors held valid judgment liens arising from Illinois citations to discover assets.
Vermeer insists that its dismissal was not voluntary and that, in any event, its secured status must be measured as of the date the bankruptcy petition was filed. For the reasons that follow, the Court agrees with Laser and holds that Vermeer’s dismissal was voluntary and that it lost its secured status when it dismissed its citation proceedings.
I.JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain this matter pursuant to
II.BACKGROUND
Vermeer obtained a $17,197.66 state court judgment against Tires N Tracks, Inc. (the “Debtor”) on December 6, 2011. (Obj. to Claim, Ex. B.) In an effort to collect on that judgment, Vermeer served a citation to discover assets (the “Citation”) on the Debtor on March 9, 2012. (Id. Ex. C.) On January 29, 2013, Vermeer conducted a citation examination of the Debtor,
On September 19, 2012, nine months after Vermeer obtained its judgment, Laser obtained a $68,463 judgment arising out of a breach of contract claim against the Debtor. (Claims Register 6-1.) In an effort to collect on that judgment, Laser served a citation to discover assets on the Debtor on September 26, 2012 (id.), thereby creating a lien on the Debtor’s personalty as of that date.
On May 24, 2013, Laser filed its objection to Vermeer’s proof of claim, arguing that Vermeer’s security interest expired when it voluntarily dismissed the Citation.
III.APPLICABLE STANDARDS
A. Standard Governing Claim Objections Generally
B. Standards Governing Citation Liens Specifically
The Illinois legislature has provided judgment creditors with various procedures to enforce their judgments. One of these is the citation to discover assets set forth in 735 Ill. Comp. Stat. 5/2-1402. A citation to discover assets serves three primary functions: (1) it automatically creates a renewable six-month lien on all of the judgment debtor’s non-exempt personal assets and income in state and federal courts;
Illinois Supreme Court Rule 277(a) defines any citation proceeding under 735 Ill. Comp. Stat. 5/2-1402 as a “supplementary proceeding.” Ill.Sup.Ct.R. 277(a). That Rule limits supplementary proceedings to six months, although it permits such extensions “as justice may require:”
A proceeding under this rule continues until terminated by motion of the judgment creditor, order of the court, or satisfaction of the judgment, but terminates automatically 6 months from the date of (1) the respondent’s first personal appearance pursuant to the citation or (2) the respondent’s first personal appearance pursuant to subsequent process issued to enforce the citation, whichever is sooner. The court may, however, grant extensions beyond the 6 months, as justice may require. Orders for the payment of money continue in effect notwithstanding the termination of the proceedings until the judgment is satisfied or the court orders otherwise.
Ill.Sup.Ct. R. 277(f).
Although the judgment creditor may obtain an extension of the citation by appropriate motion, courts have the authority to extend it without motion by parties. West Bend Mut. Ins. Co. v. Belmont State Corp., 09 C 354,
Illinois citations to discover assets have two unusual features that present special problems for judgment creditors in bankruptcy proceedings: First, in addition to creating liens on the debtor’s personalty, they provide an enforcement mechanism for locating and seizing assets to satisfy the creditor’s judgment against the debtor. Second, they automatically expire six months after issuance, unless renewed. These two features make them peculiarly susceptible to bankruptcy principles that ordinarily pose no threat to more commonplace liens: The automatic stay under
IV. DISCUSSION
Vermeer raises three arguments in response to Laser’s argument that its security interest expired when it voluntarily dismissed the Citation: First, Vermeer argues that the dismissal of the Citation was not voluntary, but was forced upon it by
In response, Laser argues that: (1) the dismissal was voluntary because Vermeer could have sought to modify the automatic stay rather than dismissing the Citation; (2) because Vermeer relinquished the lien rights it had when the Citation was dismissed, there is no action for
A. Vermeer’s Dismissal of its Citation Proceedings was Voluntary
The Court finds that Vermeer acted voluntarily when it withdrew the Citation. While its intention in dismissing the Citation may have been to avoid violating the automatic stay, respect for the stay did not require such a drastic step. Instead of dismissing the Citation, Vermeer could have simply moved to modify the automatic stay. So long as the motion to modify the stay made clear that Vermeer would not be seeking to enforce the citation lien, but only to extend the citation proceedings so that its lien rights would be preserved, modifying the stay would have done nothing more than to preserve the status quo among the parties. In the unlikely event that the Court would have denied that motion, Vermeer could simply have refrained from enforcing its lien, let the Citation lapse and then argued that
[I]f nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor ... and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay undersection 362 , 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.
Significantly,
As a result, an Illinois judgment lien creditor is not ordinarily required to take any affirmative steps to preserve a citation lien existing on the date a bankruptcy petition is filed. Of course, a judgment lien creditor may certainly seek the reassurance of asking the state court for a continuation of the citation to discover assets, provided that the creditor seeks relief from the automatic stay in the bankruptcy court first. However, obtaining relief from the automatic stay may not be required where the judgment creditor seeks merely to inform the state court of the bankruptcy filing and of the automatic continuation of the citation lien, because the creditor is not then acting to enforce the citation lien. But even in that case, nothing in the Code prevents the prudent creditor from first seeking relief from the automatic stay.
In this case,
C. Vermeer’s Lien Status as of the Petition Date
A creditor’s status as secured or unsecured is determined as of the bankruptcy petition date. See In re Schwinn Bicycle Co.,
V. CONCLUSION
For the foregoing reasons, the Court sustains Laser’s objection and finds that Vermeer’s Claim No. 3 is unsecured.
Notes
. Citation liens are a creature of an Illinois statute available to creditors holding judgments from Illinois state or federal courts. Since the statute was amended in 1993, it creates a lien on all non-exempt personal property of either the judgment debtor or a third party as long as the citation to discover assets is properly served on the parties. 735 Ill. Comp. Stat. 5/2-1402. For a discussion of the case law preceding the statutory amendment in 1993, see Dominick's Finer Foods, Inc. v. Mason (In re Makulaj,
. The citation examination satisfies one of the principle asset-discovery functions of the citation procedure. It is conducted like a deposition (including the right to demand production of relevant documents), but is limited in its scope to discovering the existence and location of personalty which might be seized and sold to satisfy the judgment against the debtor. 18 Ill. Law and Prac., Executions § 105 (2013).
. This function was provided by a 1993 amendment to the statute. Prior to that statutory amendment, the case law was unclear as to whether the statute created a lien or not, but the better reasoned decisions held that it did not. See Makula,
. Indeed, the enforcement feature of a citation to discover assets is arguably enhanced over other lien enforcement methods because courts can hold judgment debtors in contempt of court for failing to comply with the citation to discover assets. See Shales v. T. Manning Concrete, Inc.,
. Dewsnup v. Timm,