24 BK 03127
In this chapter 13 case, the Debtor filed an application to proceed without prepaying fees and costs.  The court denied the application, relying on 7th Circuit precedent that held absent extraordinary circumstances, chapter 13 debtors are ineligible to proceed in forma pauperis. The court noted that before a chapter 13 plan can be confirmed, a debtor has to pay filing fees left unpaid from prior cases as required by 11 U.S.C. § 1325(a)(2).

24 BK 03056, 24 AP 00172
In this chapter 11 case, the Debtor sought a temporary restraining order (TRO) to stay litigation against third-party guarantors, the Debtor’s principals, and related entities.  The Debtor argued its principals were responsible for all management, accounting, and operations of the Debtor and intended to contribute financially to the plan.  The court granted the TRO, relying on In re Gander Partners LLC, 432 B.R. 781, 783-84, 787-89 (Bankr. N.D. Ill. 2010), finding a temporary stay of the litigation at issue was warranted because it could distract the Debtors’ principals and affiliates.  The court found the litigation could impair this court’s jurisdiction to help the Debtor reorganize, since the source of funds to use for the reorganization could be jeopardized and that there was a reasonable likelihood of a successful reorganization.  The court noted that the relief requested was not barred by the recent ruling in Harrington v. Purdue Pharma L.P., 144 S. Ct. 2071 (2024), which invalidated the practice of granting nonconsensual releases to non-debtors in chapter 11 reorganization plans.

24 BK 00151
The chapter 7 trustee (the “Trustee”) moved for a determination that creditors’ pre-petition state court claims against non-Debtor third-parties for successor liability, fraudulent conveyance, and creation of a constructive trust were property of the estate.  Creditors objected to the motion.  They agreed with the trustee regarding two of the claims.  However, they argued the Trustee was barred from bringing the successor liability claim under the doctrine of in pari delicto.

Pre-petition, the creditors had extended loans to the Debtor, its President/sole shareholder, and a related entity (collectively, the “borrowers”).  Following the borrowers’ default, the lending creditors sued the borrowers and third parties that had allegedly offered the Debtor’s President debt counseling services.  The third parties included the current owner of the car wash—a corporation called Avalon—and its managers, two individuals. The creditors alleged the Debtor’s President and the third parties had engaged in a fraudulent scheme to interfere with debt negotiations between the creditors and borrowers and transferred the assets of the car wash business to the non-Debtor third parties to avoid the borrowers’ liability under the loans. The creditors brought the successor liability claim against Avalon, the corporate successor and current owner of the car wash; they asserted the fraud exception to Illinois’ general rule of successor corporate nonliability applied, arguing that Avalon should be held liable for payment of the loans due to its managers’ involvement in said fraudulent scheme. 

The court agreed with the objecting creditors, holding that the Trustee could not assert the successor liability claim, but for a different reason.  The court reasoned that the successor liability claim was a claim that was personal to the lending creditors, since it was for breach of loan agreements that were not common to all creditors, relying on Koch Ref. v. Farmers Union Cent. Exch., Inc., 831 F.2d 1339, 1348-49 (7th Cir. 1987). Since the lending creditors had also alleged that some of the Debtor’s President’s actions in facilitating the transfer of the car were taken under duress, the court found that whether in pari delictoapplied was more appropriately resolvable in state court by a judge or jury.

23 BK 16874, 24 AP 00020
After filing for bankruptcy, the subchapter V Debtor filed an adversary proceeding, seeking an injunction to stay a creditor from enforcing a state court judgment it obtained against the Debtor’s principal on a debt she guaranteed.  The court denied the Debtor’s Motion for Preliminary Injunction since the Debtor could not show the third-party litigation would defeat or impair this court’s jurisdiction and that the injunction sought would serve the public interest.

The court reasoned the state court judgment did not and could not impair this court’s jurisdiction, since the state court had denied the Creditor’s request to enter a finding pursuant to Illinois Supreme Court Rule 304(a).  The judgment against the principal could not be enforced or appealed until the resolution of all claims.  The action was stayed as to the Debtor (the borrower under the loan) upon it filing for bankruptcy relief.  The court reasoned the Debtor could show a likelihood of success on the merits, since, although it was early in the case, there were no apparent barriers to confirmation.  However, it could not show an injunction would serve the public interest because the Debtor did not need a stay, since the judgment against its principal could not presently be enforced.

22 AP 00206, 16 BK 26076
Six years after a chapter 7 debtor obtained a discharge and the case was closed, without moving to re-open the case, the debtor filed an adversary complaint, asserting individual and class claims against the City of Chicago.  He alleged the City violated the automatic stay under 11 U.S.C. §§ 362(a)(2), (a)(5), (a)(6) and 554(c) due to its pre-petition impoundment, repossession, and eventual disposal of his and other debtors’ vehicles.  The debtor argued the City’s possessory lien was invalid under Illinois law.  The City moved to dismiss under Fed. R. Civ. P. 12(b)(1) and (b)(6), alleging subject-matter jurisdiction was lacking because the debtor lacked standing to assert stay violations and a violation of the turnover statute.  The City argued only the chapter 7 trustee had the right to demand turnover, and since the trustee had declined the City’s offer to turn over the vehicle and did not authorize the vehicle’s release, the City did not violate the stay or turnover provisions by withholding the vehicle from him.  The Debtor had scheduled the vehicle and the City’s pre-petition lien thereon but did not claim it as exempt.

The court granted the City’s motion to dismiss with prejudice, finding the Debtor (and class plaintiffs) lacked standing because he did not credibly allege he (or the other plaintiffs) had an interest in the vehicle by claiming an exemption and could not show that the vehicle was abandoned to him under § 554 prior to the closure of the Chapter 7 case.  The court found the Debtor (and class plaintiffs) failed to state a claim because while the case was pending, the vehicle belonged to the bankruptcy estate and the City was not obligated to turn it over to the debtor.  When the case ended, the City’s lien survived the debtor’s discharge; the City rightfully maintained possession of the vehicle.  The court also found that state court would be a more appropriate forum to rule on the validity of the City’s claim that it held a possessory lien.

19 BK 09525
A chapter 13 debtor filed a motion to substitute attorney and informed the court that his lawyer(s) of record from the Semrad Law Firm did not return his calls after he sought their help with a mortgage issue, causing him to secure other counsel.  The court entered an Order setting a hearing on a Rule to Show Cause directed to the Debtor’s former lawyers, Louis Raymond Gomes, Elizabeth Placek, and Patrick Semrad to show cause why they should not be held to have violated their flat fee agreement with the Debtor, which required them to represent the Debtor until the case closed.  Attorney Patrick Semrad testified that the Debtor called the firm, but did not explain why the Debtor did not receive the services expected, arguing instead that he just wanted to change attorneys.  The court sanctioned Debtor’s former lawyers for violating the applicable rules of professional conduct. The attorneys, jointly and severally, were ordered to return $2,000 to the Debtor.

23 BK 05135
The Subchapter V Debtor/DIP filed a motion seeking to assume a commercial lease with its landlord under 11 U.S.C. § 365, which permits assumption of “unexpired” leases.  The Debtor sought to assume the lease to continue operating its restaurant on the leased premises in Chicago’s Magnificent Mile District.  In response, its landlord argued the lease was not assumable under § 365 because the lease had terminated/expired pre-petition under Illinois law.  It was undisputed that, pre-petition, the landlord served the Debtor-tenant with a statutory five-day notice per 735 ILCS 5/9-209 stating that (i) the tenant’s rights to possession would terminate if it failed to cure the rent default (then $1,081,936.64) within five days, and (ii) “[o]nly FULL PAYMENT” of the rent demanded in the notice would waive the landlord’s right to terminate the lease, unless the landlord agreed otherwise in writing.  The parties did not dispute that the Debtor did not cure the default in full within the five-day period.  The Debtor filed for bankruptcy after the five-day period expired, but before the landlord had obtained a judgment of possession.  In the eviction action and in the bankruptcy case, the Debtor argued the landlord waived strict compliance with the lease by continuing to accept the Debtor’s partial rent payments after the five-day period expired.  This court denied the motion to assume, finding the lease was not assumable under § 365 because under Illinois law, it had terminated/expired pre-petition after the Debtor failed to cure within the five-day statutory period, relying on In re Williams, 144 F.3d 544 (7^th Cir. 1998), Robinson v. Chi. Hous. Auth., 54 F.3d 316 (7^th Cir. 1995), and Vill. of Palatine v. Palatine Assocs., LLC, 2012 IL App (1^st) 102707 (Ill. App. Ct. 2012).