Gan B LLC v. Sims

Filing 16

MEMORANDUM Opinion and Order. Signed by the Honorable Harry D. Leinenweber on 6/13/2017. Mailed notice (ags, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

GAN B, LLC,
Appellant,

Case No. 17 C 385

v.

Judge Harry D. Leinenweber

JEROME SIMS, JR.,
Debtor-Appellee.

MEMORANDUM OPINION AND ORDER
This case comes before the Court on Appellant Gan B, LLC’s
appeal

from

Motion

to

a

Lift

decision
the

of

the

Automatic

Bankruptcy

Stay.

For

Court
the

denying

reasons

its

stated

herein, the judgment of the Bankruptcy Court is affirmed and
relief from the stay is denied.
I.
A.
1.

BACKGROUND

Legal Background

The Illinois Tax Sale Process

The Illinois Tax Code provides that on January 1 of each
year, a lien attaches to all non-exempt real property securing
the payment of that year’s taxes levied on that property.
Ill. Comp. Stat. 200/21-75.

35

This lien has priority over all

others, even those prior in time. Ibid.

Where property taxes go

unpaid, the county may bring an action to foreclose the lien and
seek a judgment and order of sale in Illinois circuit court.

Ibid.; 35 Ill. Comp. Stat. 200/21-150 through 21-185.

If a

judgment is rendered against such a property, the property owner
is then given an opportunity to pay the delinquent taxes and
interest up to and including one business day before the sale.
35 Ill. Comp. Stat. 200/21-165.

If the taxes go unpaid still,

then the county collector may proceed with the tax sale.

35

Ill. Comp. Stat. 200/21-205.
The sale occurs at an auction in which potential buyers
offer to pay the delinquent taxes due on the day of the tax
sale, and they do so by bidding on the lowest amount of penalty
premium that they will accept to redeem the property within the
prescribed redemption period.
(2009).

35 Ill. Comp. Stat. 200/21-215

The winning bidder pays to the county the outstanding

taxes on the property and receives in return a certificate of
purchase.

35

Ill.

Comp.

Stat.

200/21-240,

21-75;

see

also,

Application of Rosewell, 537 N.E.2d 762, 765 (Ill. 1989) (“When
the court confirms the sale, the county’s lien is extinguished,
and

a

new

lien

purchaser.”).

arises

by

operation

of

law

in

favor

of

the

Notwithstanding elimination of the county’s lien,

the delinquent property owner remains personally liable to the
county for taxes.

35 Ill. Comp. Stat. 200/21-440.

The original property owner has between two and three years
to redeem the property, depending on whether the property is a
- 2 -

residence and whether the tax purchaser extends the statutory
period.

35 Ill. Comp. Stat. 200/21-345, 21-250, 21-385, 21-389.

Redemption requires payment of the unpaid taxes plus the penalty
percentage, subsequent taxes paid by the tax purchaser plus 12
percent interest per annum, and various costs and fees permitted
by

statute.

35

Ill.

Comp.

Stat.

200/21-355.

(If

the

tax

purchaser pays delinquent taxes subsequent to the sale, then the
redemption

amount

increases

accordingly.

See,

LaMont, 740 F.3d 397, 400 n.2 (7th Cir. 2014).)

e.g.,

In

re

If the property

owner fails to redeem by the redemption date, the tax purchaser
has the right to petition for a tax deed in the circuit court of
the county where the certificate was acquired.

This petition

must be filed within six months of expiration of the redemption
period.

35 Ill. Comp. Stat. 200/21-260(f), 21-350; see also, In

re LaMont, 487 B.R. 488, 492 (N.D. Ill. 2012) (Leinenweber, J.),
aff’d, 740 F.3d 397 (7th Cir. 2014).

The tax purchaser has one

year from the redemption date to act on its petition by applying
for an order on the petition, taking the order to the county
clerk to obtain a tax deed, and recording the deed.

If there is

a court order preventing the tax purchaser from doing so – such
as the automatic stay in a bankruptcy proceeding – the one-year
period is tolled during the pendency of the order.
Compt. Stat. 200/22-85; In re LaMont, 740 F.3d at 401.
- 3 -

35 Ill.

Before

expiration

of

the

redemption

period,

the

purchaser holds only an interest in obtaining a tax deed.

tax
It is

not a future interest in property but a “non-recourse tax lien”
- “a mere species of personal property [that] does not give its
purchaser

any

equity

or

title

to

the

property,”

rights which the statutory framework creates.”

only

“those

LaMont, 740 F.3d

at 404-06, 409 (citations and internal quotation marks omitted)
(noting

that

the
a

alternatively,

lien
right

debtors’ property”).
title

to

the

amounts
to

an

to

a

“right

equitable

to

remedy

payment,
against

or
the

Issuance of the tax deed and transfer of

property

does

not

occur

unless

and

until

the

property owner fails to redeem the property by the redemption
date.

See, e.g., In re Bates, 270 B.R. 455, 459 (Bankr. N.D.

Ill. 2001).

Therefore, a certificate of purchase has no effect

on the delinquent property owner’s legal or equitable title to
the property before the redemption date.

In re Smith, 614 F.3d

654, 658-59 (7th Cir. 2010); see also, Phoenix Bond & Indem. Co.
v. Pappas, 741 N.E.2d 248, 249 (Ill. 2000) (same).
2.

Treatment of Tax Purchasers in Bankruptcy

The holder of a certificate of purchase has the right to
receive the redemption amount, which gives the tax purchaser a
“claim”

in

the

event

that

the

property

owner

files

bankruptcy before expiration of the redemption period.
- 4 -

for

LaMont,

487 B.R. at 493-95; accord, In re Romious, 487 B.R. 883, 885-86
(Bankr. N.D. Ill. 2013); In re Malec, 442 B.R. 130, 135 (Bankr.
N.D. Ill. 2011); Bates, 270 B.R. at 463-64.

When an Illinois

property owner who owes delinquent taxes files for bankruptcy
prior

to

the

redemption

date,

“his

interest

in

the

property

(including the right to redemption) passes to the bankruptcy
estate, pursuant to 11 U.S.C. § 541(a), and the tax purchaser
holds a lien which qualifies as a secured claim in bankruptcy.”
LaMont, 487 B.R. at 495 (citing Bates, 270 B.R. at 465 n.5).
Debtors may use the Chapter 13 device to pay such tax debt over
time because “they are not exercising their right to redeem” but
instead “are using their Chapter 13 plan to pay a secured claim
over

time,

as

§ 1322(b)(2).
2007).

they

are

entitled

to

do”

under 11

U.S.C.

In re Kasco, 378 B.R. 207, 213 (Bankr. N.D. Ill.

A debtor may satisfy its tax delinquency obligations if

its Chapter 13 plan pays the county in full for the back taxes,
interest, and penalty, which funds in turn rebound to the tax
purchaser.
This

LaMont, 487 B.R. at 497.
does

not

mean

that

a

certificate

onerous confirmed plan lacks recourse.
files

for

bankruptcy

after

the

tax

holder

facing

an

If the property owner
purchaser

obtains

the

certificate of purchase but before issuance of a tax deed, the
tax purchaser may not want to take its chances on receiving the
- 5 -

redemption

amount

or

a

deed

to

the

property.

See,

In

re

Carmona-Huerta, No. 07 B 73065, 2009 WL 3497125, at *1 (Bankr.
N.D.

Ill.

petition
error.”

Oct.
the

23,

2009).

circuit

Upon

such

Instead,

court
a

to

the

declare

declaration,

tax

the

the

purchaser

sale

county

a

may

“sale

in

collector,

on

demand of the certificate holder, refunds the purchase price and
other

taxes

paid

along

with

certain

costs

and

interest,

and

cancels the certificate insofar as it relates to the property at
issue.
does

35 Ill. Comp. Stat. 200/21-310(b)(1),(d).

not

obligate

the

tax

purchaser

to

seek

a

The statute
sale-in-error

declaration within a certain period of time after learning of
the debtor’s bankruptcy.
3.

See, e.g., LaMont, 740 F.3d at 401.

Tax Purchasers and the Automatic Stay

Once a debtor files a petition in bankruptcy, an automatic
stay

takes

effect

and

precludes

debtor or property of his estate.

certain

actions

11 U.S.C. § 362.

against

the

Along with

providing the debtor with a breathing spell, the stay prevents
creditors from cutting in line to take property that will be
treated

in

the

plan.

For

example,

the

stay

bars

a

tax

purchaser’s attempt to enforce its lien by petitioning for an
order to issue a tax deed.
This

is

the

case

See, e.g., LaMont, 487 B.R. at 497.

because,

even

- 6 -

after

expiration

of

the

redemption period and until the tax deed is issued, the debtor
holds title to the property.
Generally, the bankruptcy statute requires that a creditor
be granted relief from the automatic stay “for cause, including
the lack of adequate protection of an interest in property.”
U.S.C.

§

362(d)(1).

However,

a

tax

purchaser

may

not

11
seek

relief for cause based purely on the running of the redemption
period, at least where that period did not expire before the
bankruptcy

filing

and

the

tax

purchaser’s

treated in the debtor’s Chapter 13 plan.
at 497; Bates, 270 B.R. at 468.

secured

claim

is

See, LaMont, 487 B.R.

If, however, the debtor fails

to “comply with the plan” treating the tax purchaser’s secured
claim, then the latter’s equitable remedy survives and he may
proceed

to

seek

an

order

to

issue

a

deed

once

the

stay

is

lifted.

LaMont, 740 F.3d at 409-410; accord, LaMont, 487 B.R.

at

Bates,

497;

270

B.R.

at

465-66,

468-69;

but

see,

In

re

Aguirre, 565 B.R. 646, 652-54 (N.D. Ill. 2017) (reversing the
bankruptcy court’s decision to lift the automatic stay after the
debtors defaulted on Chapter 11 plan payments; noting that the
tax purchaser had extinguished its pre-petition lien in favor of
a right to payment under the plan, making the proper remedy a
breach of contract action against the debtors) (citing Matter of
Penrod, 50 F.3d 459, 463 (7th Cir. 1995)).
- 7 -

In sum, where a debtor files for bankruptcy after a tax
sale but before the end of the redemption period, subsequent
expiration of the redemption period tolls the tax purchaser’s
time to obtain a tax deed during the pendency of the automatic
stay.

But it does not affect the validity of the plan treating

the purchaser’s claim, nor does it necessitate modifying the
stay - so long as the debtors remain compliant with the plan.
B.

Factual Background

This appeal stems from the Chapter 13 bankruptcy of Jerome
Sims, Jr. (“Sims”).

Sims and his wife, Tammy, had four children

together, and Tammy also brought to the marriage a child from a
prior union.
2014,

Tammy

At relevant times before her death on October 27,
was

the

sole

owner

of

a

parcel

of

real

estate

located at 8738 South Bennett Avenue in Chicago, Illinois (the
“Property”), which she had inherited from her mother.

Because

of non-payment of real estate taxes on the Property, Cook County
held a tax sale on August 7, 2013; Gan B, LLC (“Gan”) was the
winning bidder.
addition

to

Gan holds the certificate of purchase and, in

paying

the

delinquent

real

estate

taxes

as

a

condition of the tax sale, continued to pay all real estate
taxes owed on the Property through 2015.
After Tammy died intestate, a probate action commenced in
June

of

2015;

Sims

was

appointed
- 8 -

independent

administrator.

During

those

proceedings,

modest

value

of

the

$27,000.00.

Property
Upon

was

at

the

possession

taking

appraised

of

the

Property and winding down Tammy’s affairs, Sims became aware of
the real estate tax delinquencies.
2016,

Sims

filed

the

underlying

As a result, on February 11,
petition

for

Chapter

13

bankruptcy.
On Schedule A/B of his bankruptcy petition, Sims did not
claim any ownership interest in real estate.
Sims

listed

the

Cook

County

Treasurer’s

On Schedule D,

Office

as

a

secured

creditor for property tax arrearages, which he calculated at
$9,080.00.

On Schedule J, Sims listed $900.00 in repair and

maintenance expenses associated with the Property but did not
declare any real estate taxes or property insurance expenses.
His original bankruptcy plan mandated that his $358.00 in excess
income go to pay creditors for a 60-month period, including the
Cook County Treasurer.
On February 23, 2016, Sims filed a motion to extend the
automatic stay and attached two documents:
“estimate
affidavit,

of

redemption”

Sims

averred

prepared
that

he,

by
his

an affidavit and an

Cook

County.

wife’s

child,

In

the

and

the

couple’s four children together were “set to inherit a home,”
that delinquent real estate taxes were due, and that he was
concerned about the prospect of a tax sale if the automatic stay
- 9 -

were

not

extended.

The

“estimate

of

redemption,”

which

was

prepared before the bankruptcy filing, indicated that Gan had
purchased the unpaid real estate taxes.

The Bankruptcy Court

extended the automatic stay.
On April 29, 2016, Sims filed an amended Schedule D.
the

amended

schedule,

Sims

asserted

that

the

In

previously

disclosed $9,080.00 in sold unpaid real estate taxes were in
fact owed to the Cook County Clerk and that the Cook County
Treasurer was owed $936.00 in unsold back property taxes coming
due in the first months of 2016.

The amended schedule for the

first time listed Gan as a creditor with respect to the sold
unpaid real estate taxes due the Cook County Clerk.

That same

day, Sims also amended his original plan to indicate that the
Cook County Clerk would be paid for property taxes due in 20122014 and the Cook County Treasurer for the unpaid 2015 property
taxes.

(As noted above, Gan had in fact paid all those taxes.)

The amended plan was confirmed on May 16, 2016.

Gan lodged no

objection.
In

August

2016,

Sims

filed

a

motion

in

probate

to

extinguish the interests of his and Tammy’s minor children in
the

Property.

On

August

30,

2016,

an

agreed

probate

order

transferred 100 percent of the interest in the Property to Sims.

- 10 -

A

deed

reflecting

the

same

was

filed

with

the

Cook

County

Recorder of Deeds on September 8, 2016.
On

August

22,

2016,

the

Bankruptcy

Trustee

presented

a

motion to dismiss based on Sims’s failure to make plan payments.
After

multiple

continuances

of

the

matter,

motion to defer certain plan arrearages.

Sims

presented

a

That motion indicated

that payroll deductions did not commence on time and that the
plan arrearages, if deferred to the end of the plan, would be
paid

through

payroll

deductions.

Over

Gan’s

objection,

the

Bankruptcy Court granted the motion on November 14, 2016.
About four weeks before Sims filed his bankruptcy petition,
on January 19, 2016, Gan had filed a tax deed petition in Cook
County circuit court.
period

for

the

July 11, 2016.

Gan’s petition noted that the redemption

delinquent

real

estate

taxes

would

expire

on

That day came and went without any redemption on

the part of Sims.

In order to proceed with obtaining a tax deed

on the Property, Gan filed a motion in the Bankruptcy Court to
lift the automatic stay.

It argued that its interest in the

Property was not adequately protected because, first, Sims had
failed to pay post-petition real estate taxes, forcing Gan to
pay them to protect its interest, and second, Sims was refusing
to obtain and fund hazard insurance on the Property.
contended

that

the

Property

was
- 11 -

not

subject

to

a

Gan also
claim

in

bankruptcy

and

thus

not

affected

Sims

because

–

did

not

have

title

by

to

the
the

automatic
Property,

stay
only

an

uncertain and unvested right to inherit it, when he filed his
bankruptcy petition.

Sims, on the other hand, opposed lifting

the stay on the basis that his failure to pay post-petition real
estate taxes and maintain property insurance did not amount to
inadequate protection of Gan’s interest.
that

his

interest

in

the

Property

He further claimed

vested

immediately

upon

Tammy’s death – that is, before he filed for bankruptcy - such
that

the

Property

was

properly

included

in

the

Chapter

13

estate.
The Bankruptcy Court declined to lift the automatic stay,
holding that Gan’s interest was adequately protected and that,
pursuant to the Illinois Surviving Spouse Statute, Sims had an
(equitable) inheritance interest in one-half of the Property at
the time he filed the petition.

Thus, the Property was rightly

included in Sims’s bankrupt estate such that Gan’s secured tax
claim
plan.

was

amenable

The

court

to
also

treatment
noted

in

that,

the
to

confirmed
the

extent

bankruptcy
Gan

felt

aggrieved, it could petition the circuit court to declare the
tax sale a “sale in error,” entitling Gan to reimbursement of
funds paid plus interest.

Gan then filed this appeal.

- 12 -

III.
A.

ANALYSIS

Legal Standard

The Bankruptcy Code (“the Code”) entrusts bankruptcy courts
with

discretion

when

automatic stay.

granting

a

creditor

relief

from

the

See, 11 U.S.C. § 362(d)(1) (requiring the court

to grant relief only after making a “for cause” finding); Matter
of

Holtkamp,

669

F.2d

505,

507

(7th

Cir.

1982)

(“Since

the

statute commits the decision of whether to lift the stay to the
discretion

of

the

overturned

only

bankruptcy

upon

(citation omitted).

a

judge,

showing

of

his
abuse

decision
of

may

be

discretion.”)

The standard of review of such a ruling is

governed by Bankruptcy Court Rule 8013, which mandates that this
Court accept the bankruptcy court’s findings of fact unless they
are clearly erroneous and apply de novo review to issues of law.
See, e.g., Colon v. Option One Mortg. Corp., 319 F.3d 912, 916
(7th Cir. 2003).
B.

Sims’s Interest in the Property

Gan argues that the Bankruptcy Court’s refusal to lift the
automatic stay was predicated on the erroneous legal conclusion
that Sims owned an interest in the Property sufficient for its
inclusion in the bankrupt estate at the time of filing of his
petition.

Gan posits instead that Sims did not have a concrete

ownership interest in the Property until after the redemption
- 13 -

date.

Invoking undisputed facts - such as Tammy’s death without

a will, the Property’s envelopment in probate proceedings, and
Sims’s acquisition of a deed to the Property only after the
redemption period had run - Gan maintains that the Property was
not part of Sims’s bankrupt estate when he filed the petition
such that the confirmed bankruptcy plan does not treat Gan’s
secured claim.

Sims replies that the Bankruptcy Court rightly

rejected this argument, as his equitable interest in inheriting
the Property was included within the bankrupt estate at the time
he filed his Chapter 13 petition.
Section 541(a) of the Code provides for the creation of an
estate upon commencement of a case under Section 301, 302, or
303. 11 U.S.C. § 541(a).

Under the statute, the estate is

comprised of property “wherever located and by whomever held,”
provided

that

it

falls

within

various

enumerated

Two of these categories are relevant here.

categories.

First, subsection

(a)(1) mandates inclusion in the bankrupt estate of “all legal
or

equitable

interests

of

the

debtor

in

property

commencement of the case.” 11 U.S.C. § 541(a)(1).

as

of

the

The reach of

this provision is broad, including “every conceivable interest
of

the

debtor,

future,

nonpossessory,

speculative,

derivative” that the debtor held on the petition date.

and
In re

Yonikus, 996 F.2d 866, 869 (7th Cir. 1993), abrogated on other
- 14 -

grounds, Law v. Siegel, 134 S.Ct. 1188 (2014).
property

interest

that

the

debtor

did

not

Second, even a
have

as

of

the

petition date may be included in the bankrupt estate if it falls
within the ambit of subsection (a)(5):
(5) Any interest in property that would have been
property of the estate if such interest had been an
interest of the debtor on the date of the filing of
the petition, and that the debtor acquires or becomes
entitled to acquire within 180 days after such date –
(A) by bequest, devise, or inheritance . . . .
11 U.S.C. § 541(a)(5).
“inheritance”

includes

(According to Black’s Law Dictionary,
“[p]roperty

under the laws of intestacy.”
2014).)

received

from

an

ancestor

BLACK’S LAW DICTIONARY 903 (10th ed.

This second category of estate property is also known

as “after-acquired property.”

While Section 541 determines the

scope of the estate’s property, state law usually determines the
nature and extent of a debtor’s interests as of the petition
date.

Butner v. U.S., 440 U.S. 48, 54 (1979); Peterson v.

McGladney & Pullen, LLP, 676 F.3d 594, 598 (7th Cir. 2012).
The parties do not disagree on the relevant facts, and Gan
concedes that, had Tammy devised the Property to Sims, it would
have been rightly included within the bankrupt estate at the
time of the petition’s filing.

Matter of Chenoweth, 3 F.3d 1111

(7th

establishes

as

much.

application

of

the

Cir.

Circuit

1993),

held

that

- 15 -

There,

the

after-acquired

Seventh
property

provision in Section 541 did not depend on the testator’s will
being admitted to probate before the 180-day period expired.
The will’s becoming operative, not its admission to probate,
activated the statutory provision, and this occurred upon the
testator’s death.

“[A]ll the after-acquired statute requires is

an entitlement,” which is “created by the will, and confirmed by
the probate proceeding.” Id. at 1112-13.
bankruptcy courts are in accord.

Various cases in the

See, e.g., In re Johnsson, 551

B.R. 384, 405 (Bankr. N.D. Ill. 2016); In re Elliott, 81 B.R.
460, 462 (Bankr. N.D. Ill. 1987).
Gan seeks to distinguish Chenoweth and related bankruptcy
cases

purely

on

the

grounds

that

they

all

involved

devised by will, not inherited through intestacy.
legal

authority,

committed

legal

Gan
error

contends
in

that

finding

the

“no

property
Citing no

Bankruptcy

reason

to

Court

distinguish

between testator/testatrix who leaves a will and an intestate
whose property passes according to the law of intestacy.”
No. 8 (“Appellant’s Br.”) at 21-22.)

(ECF

Gan points out that five

other parties – Tammy’s children – had interests in the Property
that were only fully extinguished upon probate determinations
subsequent

to

the

redemption

date.

Thus,

Gan’s

bone

of

contention is that it was legal error for the Bankruptcy Court

- 16 -

to treat inheritance by intestacy the same as inheritance by
devise for Section 541 purposes.
Gan’s argument rests on unsound bedrock.

Illinois law does

not distinguish between when interests in devised property vest
in devisees and when interests in intestate property vest in
heirs: both occur upon the decedent’s death.

See, e.g., Hagney

v. Lopeman, 590 N.E.2d 466, 467 (Ill. 1992) (“Catherine Stevens
died

intestate

defendant

took

on

October

title

to

15,

230

1981.

acres

of

Upon

her

death,

farmland.”)

the

(emphasis

added); Glaser v. Chicago Title & Trust Co., 66 N.E.2d 410, 414
(Ill. 1946) (holding that property of a testator not devised by
will passed to his heirs via intestacy “and was so held by them
at the time of [his] death”); Preston v. Casner, 104 Ill. 262,
267 (1882) (“The title to the lands remained in the intestate,
and of course at his death descended to his heirs at law.”)
(emphasis

added);

Sturgis

v.

Ewing,

18

Ill.

176,

185

(1856)

(“The moment the testator or intestate dies, then the rights of
the devisees or heirs attach at once, for the title is then
already vested. . . .”) (emphasis added); Illinois v. First Bank
Trust

of

Shelbyville,

435

N.E.2d

709,

711

(Ill.

App.

1982)

(“[P]roperty vests, either by terms of a will or by statutory
intestate succession, on the death of the decedent.”) (emphasis
added); Steiner v. Lawson, 219 N.E.2d 121, 127 (Ill. App. 1966)
- 17 -

(“[T]he equitable titles and beneficial interests in the three
parcels remained in Weil until his intestate death, when the
beneficial

interests

descended

in

equal

shares

to

his

three

(but

only

heirs at law. . . .”) (emphasis added).
Relatedly,

probate

proceedings

do

not

create

vindicate) legal entitlements, and so their pendency does not
affect whether an interest in property otherwise falls within a
bankrupt estate.
marked
right

Illinois “courts have always recognized the

distinction
to

the

possession

enjoy

between

vesting

of

that

of

an

estate.

estate
The

and

latter

effected by probate proceedings, while the former is not.”

the
is
In

re Estate of Knight, 533 N.E.2d 949, 951 (Ill. App. 1989); see,
Chenoweth, 3 F.3d at 1113.
Nor is it damning, as Gan suggests, that Sims did not list
on Schedule A/B of his petition any interest in real estate.

In

moving to extend the automatic stay shortly after filing the
petition,

Sims

disclosed

via

affidavit

his

own

inheritance

interest and that of Tammy’s children in the Property.

He later

filed

and

amendments

listing

Gan

as

an

interested

party

the

municipal real estate tax collectors as creditors.

While the

Bankruptcy

plan

Court

noted

that

confirmation

of

the

was

inadvisably hasty, Gan had 14 days’ notice yet did not object to
the

plan,

did

not

subsequently

ask

- 18 -

the

Bankruptcy

Court

to

revoke it pursuant to 11 U.S.C. § 1330, and did not seek leave
to file a proof of claim.

Gan’s appeal cannot rest on such

procedural faits accomplis, which go to the plan’s validity and
not the Bankruptcy Court’s refusal to lift the stay for Gan to
pursue a tax deed.
Ergo, the Bankruptcy Court did not commit legal error in
applying

the

Chenoweth

rationale

to

the

case

at

bar.

Upon

Tammy’s intestate death on October 27, 2014, Sims obtained via
the

Illinois

Surviving

Spouse

Statute

a

vested

equitable

interest in 1/2 of the Property.

755 Ill. Comp. Stat. 5/2-1(a).

Such

Section

an

interest

falls

within

541

and

was

rightly

included in the bankrupt estate when Sims filed his petition on
February 15, 2016.

See, Chenoweth, 3 F.3d at 1113 (holding that

all the statute “requires is an entitlement”); Yonikus, 996 F.2d
866, 869 (noting that section (a)(1) embraces “every conceivable
interest of the debtor,” including “future” interests).

It is

thus immaterial that Sims lacked full legal title and was not
the

Property’s

Under

LaMont,

sole
Gan’s

owner

until

secured

after

claim

the

was

redemption

fodder

for

date.
Sims’s

bankruptcy plan and capable of being paid over the life of the
plan.

- 19 -

C.
Gan’s

other

basis

Adequate Protection
for

appealing

the

Bankruptcy

Court’s

denial of its Motion to Lift the Automatic Stay is a lack of
adequate protection.

Gan claims that its secured claim on the

Property is not adequately protected because of Sims’s failure
to pay post-petition real estate taxes and maintain insurance on
the Property.

Gan argues that the former amounts to inadequate

protection of its secured claim because a potential subsequent
purchaser of the Property’s outstanding tax debt would have a
superior

lien.

With

respect

to

Sims’s

failure

to

carry

insurance, Gan invokes the specter of catastrophic damage to the
Property.

Sims ripostes that he need not pay post-petition real

estate taxes or maintain property insurance because Gan has no
security agreement or other contract with Sims.
The Code provides for relief from the automatic stay “for
cause, including the lack of adequate protection of an interest
in property.” 11 U.S.C. § 362(d)(1).
cannot

repossess

or

foreclose

on

Because secured creditors

their

collateral

while

the

automatic stay is in effect, “adequate protection” is intended
to protect, during the pendency of the bankruptcy case, against
loss in value of the secured creditor’s interest in property of
the estate.

United Sav. Ass’n of Texas v. Timbers of Inwood

Forest Asscs., Ltd., 484 U.S. 365, 370 (1988).
- 20 -

Section 361 of

the Code describes different forms that adequate protection may
take:

“a

cash

payment

or

periodic

cash

payments”

or

“an

additional or replacement lien” to the extent a stay results in
a decrease of the value of a creditor’s interest, along with
“other relief . . . as will result in the realization by [the
creditor] of the indubitable equivalent” of its interest.

11

U.S.C. § 361.
First, the Court acknowledges a dearth of authority germane
to

Gan’s

debtor’s

argument.
obligation

security agreement.

Gan
to

cites

a

exclusively

secured

cases

mortgage-holder

involving

a

or

a

under

See, e.g., In re Greives, 81 B.R. 912, 969-

70 (N.D. Ind. 1987) (“[T]he Debtors, when obligated to do so by
the security instruments, must pay current taxes and keep the
property properly insured.”) (emphasis added); In re Pittman, 7
B.R.

760,

760

(S.D.N.Y.

1980)

(“The

mortgage

obligated

the

Debtor, inter alia to pay the indebtedness, to maintain fire
insurance for the protection of the mortgaged property and to
pay

the

real

estate

taxes

and

water

and

sewer

charges

as

assessed.”); In re El Patio Ltd., 6 B.R. 518, 522-23 (C.D. Cal.
1980) (requiring the debtor to make an annual payment to its
lender,

a

bank

holding

a

promissory

note,

since

“accruing

property taxes as a lien ahead of the Bank erodes the value of
its

secured

interest”).

Yet

each

- 21 -

of

these

is

of

dubious

relevance here.

As the Seventh Circuit has recognized, a tax

purchaser’s claim is not even properly considered “a security
interest because it was not created by agreement.”

LaMont, 740

F.3d at 409 (citing 11 U.S.C. § 101(51) (emphasis in original)).
The Bankruptcy Court’s order stressed this absence of privity
between

Gan

and

Sims

–

and

for

good

reason.

Unlike

the

mortgagee/mortgagor relationship, in which the mortgagee often
insists
property

on

payment

insurance

of
as

real
a

estate

condition

taxes
of

and

advancing

maintenance
funds

to

of
the

mortgagor-debtor, Gan could not have predicated acquisition of
its

tax

claim

obligations.

on

Sims’s

(or

Tammy’s)

performance

of

such

This seems especially true with respect to post-

petition real estate taxes, given Gan’s effective assumption of
the risk of tax arrearages on the Property and its payment of
the Property’s delinquent real estate taxes after the tax sale
(from 2012-2015).

Gan furnishes the Court with no authority or

argument for treating a tax purchaser, who contracts with the
taxing authority, the same as a mortgagee or other secured party
in privity with the debtor.
Similarly, the Court’s own search of adequate protection
cases vis-à-vis real estate taxes and insurance coverage turned
up

only

scenarios.

mortgagor-mortgagee

and

other

security

agreement

See, e.g., In re Doug Wilson Ins. Agency, Inc., 495
- 22 -

B.R.

428

automatic

(Bankr.
stay

E.D.

where

Ark.

2013)

mortgagee

was

(finding

cause

required

to

to

lift

self-insure

mortgaged property and pay its tax arrearages); In re Biltwood
Props. LLC, 473 B.R. 70 (Bankr. M.D. Pa. 2012) (creditor holding
first,

second,

and

third

mortgage

liens

against

debtor’s

commercial real estate was entitled to “for cause” relief from
stay based on inadequate protection where debtor failed to pay
real estate taxes); In re Mitchell, 75 B.R. 593 (Bankr. E.D. Pa.
1987) (requiring mortgagor-debtor to remit insurance check to
undersecured mortgagee or suffer lifting of automatic stay); In
re Trident Corp., 19 B.R. 956 (Bankr. E.D. Pa. 1982) (granting
mortgagee relief from stay where mortgagor-debtor failed to pay
real-estate

taxes

or

maintain

insurance

coverage

on

subject

property); In re Graydon, 8 B.R. 475 (Bankr. S.D. Fla. 1981)
(conditioning
maintaining

continuance
insurance

and

of

automatic

paying

stay

monthly

on

debtor’s

real-estate

tax

accruals, as required by security agreements); In re Grundstrom,
14 B.R. 791 (Bankr. D. Mass. 1981) (finding mortgagee of vacant,
uncared-for, residential property inadequately protected based
on absence of insurance; granting relief from automatic stay to
pursue foreclosure action); In Re Vincent, 7 B.R. 866 (Bankr.
M.D. Fla. 1980) (denying mortgagee’s petition for relief from
automatic stay where mortgagor-debtor defaulted on real-estate
- 23 -

tax

and

provided

insurance
“the

interest);

In

payments,

as

sufficient

indubitable

equivalent”

re

5

Tucker,

B.R.

180

of

equity

cushion

mortgagee’s

property

(Bankr.

S.D.N.Y.

1980)

(granting mortgagee for-cause relief from automatic stay based
on inadequate protection where mortgagor-debtor allowed fire and
hazard insurance to lapse and made no repairs to property).
The Court did find one exception to the foregoing, In re
Scott, 449 B.R. 535 (Bankr. N.D. Ill. 2011), a case neither
party

cited

that

nonetheless

tracks

Gan’s

real

estate

tax

argument. In Scott, an assignee of a certificate of purchase
sought relief from the automatic stay to pursue a tax deed in
state court because the debtor was behind on post-petition real
estate

taxes.

The

bankruptcy

court

granted

relief

from

the

stay, finding inadequate protection under § 362(d)(1) based on
the debtor’s inability to afford real estate taxes both pre- and
post-petition and “the great risk that another tax buyer may
intercede” “at a tax sale.” Scott, 449 B.R. at 536.

This pre-

LaMont case, however, does not control the disposition here.
First, unlike the debtor in Scott, Sims has indicated an
ability

to

pay

some

of

the

tax

arrearages.

Although

the

confirmed plan’s Schedule J does not expressly allocate money
for tax payments, it does list $900.00 per month in property
maintenance expenses.

Sims’s brief offers that the maintenance
- 24 -

“currently being completed with these funds can be deferred and
the amount [owed] in property taxes going forward can be paid
from this sum.”

(ECF No. 10 (“Appellee’s Br.”) at 7.)

Although

hardly a model for bankruptcy plans in the future, reallocating
available funds in this way alleviates both the Scott court’s
concern about perpetual inability to pay and Gan’s preoccupation
with the lack of provision for tax payments on Schedule J.

To

the extent Gan doubts Sims’s sincerity, Gan can take comfort in
knowing

that,

if

the

debt

is

not

repaid

in

full,

its

lien

remains intact throughout the bankruptcy proceeding and may be
enforced after the stay is lifted.

See, 11 U.S.C. § 1325(a);

LaMont, 740 F.3d at 409-10; LaMont, 487 B.R. at 498; Bates, 270
B.R. at 468.
Second, the risk of any tax buyer interceding to purchase
post-petition real estate tax arrearages is illusory.

Tax sales

occurring “when the automatic stay is in effect . . . are void
ab initio.”
Taxes,

683

In re Application of Cnty. Collector for Delinquent
N.E.2d

995,

997

(Ill.

App.

1997)

(citing

In

re

Garcia, 109 B.R. 335, 340 (N.D. Ill. 1989); Richard v. City of
Chicago, 80 B.R. 451, 453 (N.D. Ill. 1987)).
finding

of

inadequate

protection

in

the

By grounding a

prospect

of

a

post-

petition tax sale, Scott’s and Gan’s rationale appears unsound
where, as here, the property subject to the potential tax sale
- 25 -

is estate property. See, Section III.B, supra.

(Indeed, one of

the reasons why the Bankruptcy Court extended the automatic stay
in this case was Sims’s consternation about a tax sale.) While a
court may in some circumstances validate a tax sale by granting
retroactive relief from the automatic stay, such relief “can
only be granted in accordance with equitable principles,” as
when

“a

creditor

did

not

have

actual

knowledge

of

the

applicability of the automatic stay and the creditor would be
unfairly prejudiced if the debtor could raise the stay as a
defense.”

In re Lipuma, 167 B.R. 522, 526 (N.D. Ill. 1994).

There is no indication that such circumstances are present here,
and thus no appreciable risk to Gan of losing priority to a
competing tax purchaser because Sims has missed post-petition
tax payments.
The more cognizable risk, unmentioned by Gan and the Scott
court, is that the county acquires a superior tax lien on post2015

accruing

tax

arrearages.

But,

as

the

Bankruptcy

Court

noted – relying on post-Scott cases such as LaMont and Romious Gan is adequately protected from any such injury by the Illinois
property tax code’s sale-in-error provision:

it can petition

the circuit court to declare its tax purchase a “sale in error”
and demand refund of “the amount paid” “subsequent to the tax
sale and prior to the issuance of the tax deed.”
- 26 -

35 Ill. Comp.

Stat. 200/21-310(b)(1) & (d); LaMont, 740 F.3d at 401 (noting
that

the

sale-in-error

reimbursement

“for

doctrine

everything

he

allows
paid,

a

plus

tax

purchaser

interest”).

In

fact, it is this “generous” provision that prompted the Clerk of
Cook County to file an amicus brief in LaMont, imploring the
Seventh Circuit not to permit tax purchasers to delay seeking a
sale in error and thereby leave the county “on the hook for a
significant amount of interest.”

LaMont, 740 F.3d at 410.

The

court noted with regret that “the risk of the county being on
the hook for interest while the time to obtain a tax deed [after
the redemption period] is tolled is built into the code,” and
that

“[a]ny

solution

to

that

problem

is

legislature of Illinois.” Id. at 410-411.

for

the

courts

or

The sale-in-error

doctrine “indicat[es] that the legislature anticipated adverse
treatment of a tax purchaser’s interest in bankruptcy (that is,
treatment as a claim among other claims).”

Id. at 405 n.10; see

also, LaMont, 487 B.R. at 498; Romious, 487 B.R. at 886.
With respect to Sims’s failure to carry insurance on the
Property, the Court’s search turned up no cases supporting the
proposition

that

a

tax

purchaser

is

entitled

to

adequate

protection in the form of the debtor’s maintenance of property
insurance.

For many of the same reasons discussed above, it was

not legal error for the Bankruptcy Court to reject Gan’s attempt
- 27 -

to impose a property insurance obligation on Sims in favor of
the proposition, enjoying recent support in this Circuit, that a
tax purchaser is generally adequately protected by the sale-inerror

doctrine.

property

arising

Fundamentally,
from

a

the

certificate

interest
of

in

purchase

underlying

is

a

unique

creature, enjoying only the rights granted under the statutory
scheme.

LaMont, 740 F.3d at 405 (“[T]o the extent the Illinois

Appellate

Court

property,

it

has

has

recognized

been

any

limited

to

interest
those

in

the

rights

statutorily by the Illinois property tax code.”).

real

conferred

For example,

one of those rights is the right to petition for appointment of
a receiver to prevent waste.

See, 35 Ill. Comp. Stat. 200/21-

80; accord, LaMont, 740 F.3d at 406 (noting that “Illinois has
given tax purchasers an unusual tax lien,” which “provides the
possibility of ownership in the future . . . [and] some rights
to protect that interest, including the right to petition for
appointment of a receiver to prevent waste”).

But the statute

does not go so far as to require maintenance of insurance in
order to forestall any potential loss on the property.
Attempting to fit Gan’s round claim into the Code’s square
hole,

the

Bankruptcy

which

under

certain

Court

analyzed

conditions

11

obligates

U.S.C.
a

1326(a)(4),

debtor

insurance to protect a secured creditor’s interest:
- 28 -

§

to

carry

Not later than 60 days after the date of filing of a
case under this chapter, a debtor retaining possession
of personal property subject to a lease or securing a
claim attributable in whole or in part to the purchase
price of such property shall provide the lessor or
secured
creditor
reasonable
evidence
of
the
maintenance of any required insurance coverage with
respect to the use or ownership of such property and
continue to do so for as long as the debtor retains
possession of such property.
11 U.S.C. § 1326(a)(4) (emphasis added).
convinced

that

§

1326(a)(4)

is

even

This Court is not
applicable

to

Gan’s

argument, and there would be no dice even if it were (as the
Bankruptcy Court assumed).
Sims

is

“retaining

As an initial matter, the property

possession

of”

is

real

estate,

not

Gan’s

personal property, even if he possesses the Property subject to
Gan’s secured tax lien that itself is a “species of personal
property.”

LaMont, 740 F.3d at 403.

Regardless, applying this

insurance provision does little to advance the ball.

Gan cannot

be characterized as a lessor either of the Property or of the
tax lien, nor does it hold a purchase-money security interest in
the Property, having advanced no funds to finance its purchase.
(Instead,

Tammy

inherited

the

Property

from

her

mother,

Gan

purchased the delinquent taxes, and the Property then passed via
intestacy to Sims.)

In the best case scenario for Gan under the

Code, where § 1326(a)(4) classifies Sims’s possession as that of

- 29 -

“personal property,” none of the listed circumstances mandating
property insurance obtains anyway.
Because nothing in the case law, the Code, or the Illinois
property tax code supports Gan’s argument, the Court perceives
no legal error in the Bankruptcy Court’s determination that Gan
is

adequately

petition

protected

real

Obtaining

a

estate

despite
taxes

sale-in-error

Sims’s

or

failure

carry

declaration

to

property
would

pay

post-

insurance.

give

Gan

the

“indubitable equivalent” of its interest in the Property such
that it is adequately protected under 11 U.S.C. § 361.
*

*

*

Finally, the Court notes an alternative means of affirming
the Bankruptcy Court’s ruling.

In deciding whether to grant

relief

“for

from

an

automatic

stay

cause”

–

and

adequate

protection is the first example of “cause” the Code provides three favors guide a court’s decision.

The Seventh Circuit in

Matter of Fernstrom Storage and Van Co., 938 F.2d 731 (7th Cir.
1991), held the following inquiries relevant to granting such
relief: whether “a) [a]ny great prejudice to either the bankrupt
estate or the debtor will result from continuation of the civil
suit, b) the hardship to the [non-bankrupt party] by maintenance
of the stay considerably outweighs the hardship of the debtor,

- 30 -

and

c)

the

creditor

has

a

probability

of

prevailing

on

the

merits.” Id. at 735 (citations omitted).
Based on the undisputed facts the Bankruptcy Court found,
Fernstrom militates in favor of denying Gan’s motion.

First,

Gan’s attempt to pursue a tax deed during the pendency of the
stay would prejudice the bankrupt estate, because it would be a
suit against the predominant piece of estate property. (See,
Section III. B, supra.)
a

creditor

seeks

The situation is not akin to one where

purely

a

declaration

of

liability

as

a

predicate to recovering from insurers, sureties, or guarantors.
Fernstrom, 938 F.2d at 735-36; see, e.g., Matter of Holtkamp,
669 F.2d 505, 508-09 (7th Cir. 1982).
Second, the hardship to Sims outweighs any hardship to Gan,
because the latter may simply pursue a sale-in-error declaration
if it is denied relief, whereas the former must forfeit his
residence

if

Gan

is

granted

relief

successfully obtains a tax deed.
Gan

to

recoup

the

funds

it

from

the

stay

and

A sale in error would allow

outlaid

on

the

Property’s

tax

arrearages; Sims, on the other hand, has no way to recoup his
investment

in

maintaining

and

repairing

the

Property.

Also

worth noting is that the situation here does not involve nonbankruptcy
maintenance

litigation
of

the

at
stay

an

“advanced

does

not

- 31 -

stage,”

force

Gan

meaning
to

write

that
off

significant litigation expenses.

Fernstrom, 938 F.2d at 736-37;

see, e.g., In re Sonnax Indus., 907 F.2d 1280, 1287 (2d Cir.
1990)

(declining

litigation

in

to

lift

the

stay

state

court

has

not

in

part

progressed

because
even

“the

to

the

discovery stage”).
Even

if,

under

the

third

Fernstrom

factor,

Gan

has

a

greater probability of prevailing in its petition for a tax deed
than Sims or the bankrupt estate does in opposing, the first two
factors

nonetheless

significantly

favor

maintaining

the

stay.

Therefore, as an alternative to affirming the Bankruptcy Court’s
finding of adequate protection, the Court upholds its denial of
Gan’s requested “for cause” relief based on Fernstrom balancing.
IV.

CONCLUSION

The Bankruptcy Court committed no legal error in finding
that the Property comprised part of the bankrupt estate at the
time Sims filed his Chapter 13 petition, because he inherited an
equitable

interest

death of his wife.
capable

of

in

the

Property

upon

the

prior

intestate

Gan thus has a secured claim on the Property

treatment

in

bankruptcy

over

the

life

of

the

confirmed plan, and Sims’s filing of the bankruptcy petition
after the tax sale but before the redemption date effectively
tolled the redemption period (for as long as Sims complies with
the plan).

The Bankruptcy Court similarly committed no legal
- 32 -

error

in

finding

Gan’s

protected

despite

Sims’s

interest

in

failure

to

the
pay

Property

adequately

post-petition

real

estate taxes and maintain insurance on the Property.
For

the

reasons

stated

herein,

the

Court

affirms

the

decision of the Bankruptcy Court denying Gan’s Motion to Lift
the Automatic Stay.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Dated: June 13, 2017

- 33 -