Ballinger v. Hickory Point Bank & Trust

Citation: 291 Ill. App. 3d 588Docket: No. 4—95—1013

Court: Appellate Court of Illinois; August 14, 1997; Illinois; State Appellate Court

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Respondents Hickory Point Bank and Trust, bankruptcy trustee Vernon Houchen, and Macon County tax collector Cathy L. Ashby filed motions to set aside a tax sale and sought a sale in error under section 21—310 of the Property Tax Code, arguing that the home's owners were in bankruptcy during the sale, which was prohibited by an automatic stay. The trial court vacated the tax deed order and granted the petition for sale in error, leading tax purchaser Dennis Ballinger to appeal. 

The Wards filed for Chapter 13 bankruptcy on July 7, 1992, later converting to Chapter 11, but their case was dismissed on October 22, 1992, due to failure to pay required fees. Their case was reinstated on November 19, 1992, and the notice of commencement indicated the case was filed on October 13, 1992. They converted to Chapter 7 bankruptcy on March 1, 1993, receiving a discharge on December 6, 1993. During the bankruptcy, Hickory Point requested to lift the automatic stay, which was granted on September 23, 1993, leading to a foreclosure action.

Real estate taxes were delinquent when the Wards filed for bankruptcy, and the taxes were sold at the Macon County tax sale on October 26, 1992, to Dome Tax Service, which assigned the certificate to Ballinger on May 18, 1995. Ballinger filed for a tax deed on October 4, 1995, after the redemption period expired. On October 23, 1995, motions for sale in error were filed, and at a December 8 hearing, the court granted the Macon County collector's motion for sale in error and set aside the tax deed. Ballinger subsequently appealed. 

Bankruptcy law protects debtors' real property from tax sales through an automatic stay, which remains in effect until the case is closed, dismissed, or a discharge is granted or denied, as outlined in section 362 of the Bankruptcy Code.

A tax sale conducted while an automatic stay is in effect is considered void ab initio, regardless of whether the debtor included the tax debt in their Chapter 13 plan, as creditors are bound by the stay without needing notice. In Illinois, a tax sale may be declared a "sale in error" if a bankruptcy petition has been filed by the property owner prior to the sale. If the Wards had an active bankruptcy petition at the time of their property's tax sale, the sale would be void under the Bankruptcy Code, allowing the Macon County collector to petition for a sale in error. However, on the date of the tax sale, the Wards' bankruptcy petition had been dismissed, thus the automatic stay was not in effect. Ballinger contends that the sale was valid and that the automatic stay must be active for a sale to be classified as a sale in error. The trial court acknowledged that federal courts have inconsistently applied automatic stay rules, particularly in cases of dismissal and subsequent reinstatement. Citing case law, particularly In re De Jesus Saez, the automatic stay ceases upon the dismissal of a bankruptcy petition unless explicitly extended. Therefore, actions taken by creditors during the lapse between dismissal and reinstatement are not void.

Some bankruptcy courts have ruled that a motion to reinstate a dismissed bankruptcy case can treat the case as if the dismissal never occurred, as established in *In re Lewis, Coulter, Inc.*, 159 B.R. 188 (Bankr. W.D. Pa. 1993). In that case, the debtor's bankruptcy was dismissed on December 22, 1992, but the debtor moved to reinstate it within the required 10 days. The court allowed the motion on February 9, 1993, effectively nullifying the dismissal order and treating the bankruptcy petition as continuously filed. The court determined that it would be unjust not to recognize the accrued vacation pay of an employee as an administrative expense during the period of dismissal. The trial court in the current case found the *Lewis, Coulter* decision persuasive, noting there was no final order during the tax sale since the dismissal was later reversed. Therefore, the bankruptcy petition was deemed pending at the time of the tax sale. 

While *Lewis, Coulter* has faced criticism from other courts (e.g., *In re Thomas*, 194 B.R. 641), its principles are upheld as bankruptcy courts operate under equitable considerations. In the current case, the bankruptcy court reinstated the Wards' case and regarded it as continuously filed, preventing creditor actions against their property during the interim. The record did not indicate that the Wards requested a reinstatement of their automatic stay after the case was reinstated; nevertheless, the court treated the stay as effective from the original filing date. This approach aligns with the legislative intent of the automatic stay, which aims to allow debtors to manage their affairs free from creditor interference.

The bankruptcy court's determination that the automatic stay was in effect between the dismissal and reinstatement of the Wards' bankruptcy petition is upheld, aligning with legislative intent for orderly resolution of creditor claims. For the purpose of granting a petition for sale in error, the stay is treated as remaining in effect. However, section 21—310 of the Property Tax Code does not mandatorily require an automatic stay for such a petition to be granted. Ballinger argues that to qualify for a sale in error under section 21—310(a)(6), an automatic stay must be active at the time of the tax sale. He contends the statute's lack of time limitations implies that an older bankruptcy petition could indefinitely postpone tax sales, which he believes contradicts legislative intent. The interpretation of statutes relies heavily on legislative intent, which should be discerned from the statutory language itself. The court asserts it cannot read exceptions or conditions into clear statutory language. Section 21—310(a)(6) does not mention an automatic stay, indicating that its provisions are not dependent on the Bankruptcy Code's automatic stay. The legislature has simplified the process, stating that if a bankruptcy petition is filed, any sale during that pendency is erroneous. Once a bankruptcy case concludes—either through discharge or otherwise—the prior filing cannot justify a petition for sale in error.

The standard of proof for a trial court to declare a sale in error is outlined in section 21—310 of the Property Tax Code, requiring the court to be satisfied that a bankruptcy petition was filed prior to the property sale. In this instance, the Wards’ bankruptcy petition had been active for only three months before being dismissed due to a failure to pay a fee, with no motion to lift the stay having been heard at that time. The petition was filed on July 7, 1992, and they were discharged from bankruptcy on December 6, 1993. The property tax sale occurred on October 26, 1992, while it was determined that the bankruptcy petition was in place beforehand.

Ballinger contested Hickory Point's ability to set aside the tax deed order, claiming Hickory Point had been notified post-sale and had failed to redeem the taxes. Hickory Point's petition for sale in error was dismissed by the trial court since only specific entities, including the county collector, tax purchasers, or municipalities, are permitted to file such petitions under the statute. Nonetheless, the court granted Hickory Point's motion to set aside the order for tax deed, consistent with section 21—310, which mandates that upon declaring a sale in error, the county clerk must record the error and refund the certificate holder, which in this case is Ballinger. While Ballinger is entitled to a refund with interest, he cannot receive a tax deed since the sale was deemed erroneous. The trial court's judgment is thus affirmed.