No business likes not getting paid or compensated for the value of its services, especially when the right to payment is protected under state law. This rings especially true for towing companies that perform relocation towing under the Illinois Commercial Relocation of Trespassing Vehicles Law or police towing under Chapter 4, Article II of the Illinois Vehicle Code (625 ILCS 5/4-200 et seq.). Under applicable Illinois law, towing companies are given “possessory liens” for towing and storage fees, which means that until those fees are paid, the tower can “possess” the vehicle. However, vehicle owners have found a nice antidote for payment: file for bankruptcy protection, rely on Thomson v. General Motor Acceptance Corp., LLC, 566 F.3d 699 (7th Cir. 2009) (a Seventh Circuit bankruptcy case) and require the towing company to return the vehicle for free to the debtor. A towing company has recourse in the bankruptcy court: it can seek a replacement lien (or judicial lien) that is a substitute the tower’s possessory lien. The tower can then file a proof of claim alleging that it has a secured claim for towing and storage charges. This gives the tower higher priority status for payment, but it does not always result in payment occurring if the bankruptcy case is dismissed. A tower would still have its judicial lien, but to enforce the lien, it would need to repossess the vehicle, sell it, and hope there are proceeds available to satisfy its lien. When the amount of the lien is small, this procedure may be cost-prohibitive.
In some instances, the tower may have sold the vehicle pre-bankruptcy filing, in which case it could argue that the vehicle is not property of the debtor’s bankruptcy estate, and thus, should not be turned over to the debtor. This assumes that the tower has complied with the sale procedure under applicable Illinois law. Again, proving this could be expensive and time-consuming for a small lien amount.
When a tower gets a call from a vehicle owner or the owner’s bankruptcy attorney advising that a bankruptcy petition has been filed, the tower should obtain the name of the owner, the vehicle information and the bankruptcy case number and immediately contact its attorney to verify that the owner has indeed filed for bankruptcy protection. The tower can then take steps to protect its interests in the bankruptcy court through the established remedies afforded to creditors. Withholding possession of the vehicle without taking any affirmative steps in the bankruptcy court could prove problematic. A debtor may file a motion for sanctions against the tower seeking not only immediate turnover of the vehicle, but also actual damages, punitive damages and attorney’s fees.