Case law history:

Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009), the Seventh Circuit held that if the city holds a vehicle in impound, that is an exercise of control which violates the automatic stay under Section 362(a)(3).

 In re Avila, 566 B.R. 558 (Bankr. N.D. Ill. 2017) Judge Cassling held that a possessory lien on a vehicle falls within the exception to the automatic stay under Section 362(b)(3) allowing the city to maintain possession and essentially securing the debt owed to the city to the vehicle, allowing for the city to be paid as a secured claim.

In re Walker, 17-33957 (Bankr. N.D. Ill. Dec. 20, 2017) Judge Schmetterer said the city must return impounded cars, but their lien remains and they would be allowed to file an emergency motion to modify the automatic stay and /or request adequate protection.

Other jurisdictions remain split, so hopefully the US Supreme Court will choose a case and weigh in as well.   Time will tell.

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In re Medina, 17-18090 (Bankr. N.D. Ill. Nov. 20, 2017)

Judge Schmetterer ruled in favor of the debtors in this chapter 7 bankruptcy case.  The Judge stated that a “wedding ring has become common custom, even a necessary sign of being married.”  This case arose after the trustee questioned the debtors about their jewelry listed in the schedules.  The debtors filed an amendment after the 341 meeting, to list the ring and exempting it as “necessary wearing apparel.” In fact, the debtor did not wear the ring to the 341 meeting, and admitted under oath that she did not always wear it.   Judge Schmetterer said that even in light of those facts, not everyone wears their wedding and engagement rings at all times, some limit them to family gatherings and important events.   With this information, Judge Schmetterer concluded that because of the outward facing appearance – it was necessary to present to the world that the debtor was married, thus allowing the exemption, overruling the Trustee’s challenge.

In summary, in Illinois, a debtor can exempt a wedding or engagement ring under the necessary wearing apparel exemption.   Judge Schmetterer held “that a wedding ring or engagement ring worn usually by a man or woman still married to the same person as when the ring was tendered before or during a wedding ceremony qualifies as ‘necessary wearing apparel’ under the Illinois exemption.”

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The Court held that “the Debtor may not surrender the collateral in full satisfaction of the debt to the Creditor. The Creditor is entitled to seek its available state law remedies, including its right to an unsecured deficiency claim after liquidation of its collateral.”

Judge Squires follows the minority argument in other jurisdictions, but it is also supported by fellow Chicago Bankruptcy Judge Schmetterer. This argument states that that when the collateral is surrendered, “the bankruptcy estate no longer has an interest in the collateral for purposes of § 506.” Wherefore, the “hanging paragraph” does not preclude the creditor from claiming an allowed unsecured deficiency claim under § 502.

Judge Squires continued:
“Judge Schmetterer in the Morales case followed Judge Shefferly’s logic in Particka, and he aptly explained the interplay between § 506(a) and § 1325(a)(5)(C):

if a debtor surrenders the vehicle, the interests of parties in the collateral and the impact of § 506 changes. Section 506(a) applies only to “an allowed claim of a creditor secured by a lien on property in which the estate has an interest. . . .” 11 U.S.C. § 506(a). If a confirmed Chapter 13 plan provides for surrender of a vehicle under § 1325(a)(5)(C), the estate no longer has an interest in the vehicle. . . . When . . . . the debtor surrenders the vehicle and the estate no longer has an interest in the property that secures a claim, there is no reason to use the valuation process provided in § 506 to determine the amount of the allowed secured claim. Rather, once the vehicle is surrendered to the creditor pursuant to § 1325(a)(5)(C), the value of the creditor’s secured claim is determined under state law, Illinois U.C.C., 810 ILCS 5/9-610-624. “

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