The Chicago City Council’s finance committee approved a measure Monday that would forgive ticket debt for some city motorists, but only those who file for Chapter 7 bankruptcy.
The move is meant to steer indebted drivers away from Chapter 13 bankruptcies that rarely eliminate their debt. The proposed reform, which comes amid growing calls to overhaul the city’s ticketing and debt collection practices, was drafted by the Law Department and included in the 2019 budget package approved by the finance committee.
The measure would wipe away unpaid tickets, fines and fees issued more than three years before debtors file for a Chapter 7 bankruptcy, as long as their bankruptcy plan is successful and they complete a city payment plan for more recent ticket debt. Late penalties and other fines, including boot and impound fees, would also be forgiven.
The measure seeks to address a significant problem uncovered in a ProPublica Illinois report in February: that thousands of mostly black and low-income motorists are filing for Chapter 13 bankruptcy to cope with the consequences of unpaid parking and automated-traffic-camera tickets that often lead to license suspensions and vehicle seizures.
Chapter 13 is the only kind of bankruptcy in which municipal debt, such as unpaid tickets, can be forgiven. But it is rarely a good long-term solution for many people, particularly those with ticket debt. That’s because this type of bankruptcy requires debtors to hand over their disposable monthly income for up to five years, which people with limited incomes often find challenging.
If they stop making payments and their bankruptcy cases get dismissed, debt collectors can come calling again, and threaten license suspension and vehicle seizure. Fewer than one in four of these cases end with debtors successfully completing a payment plan and emerging from bankruptcy, ProPublica Illinois found.
Chapter 7 bankruptcies, on the other hand, almost always end with debt relief. But motorists in Chicago don’t often go that route for two reasons: Ticket debt can’t be forgiven using this kind of bankruptcy, and most lawyers require their fees to be paid in full before they file for bankruptcy protection.
In Chicago, bankruptcy lawyers typically require $1,000 in legal fees to be paid before filing a Chapter 7 case, but they will file a Chapter 13 case for no money down and collect about $4,000 in legal fees over the life of the payment plan.
Last fall, ProPublica reported how black debtors across the country, and particularly in southern cities like Memphis, Tennessee, are more likely to file under Chapter 13 and not obtain debt relief.
David Holtkamp, a senior corporation counsel for the city who oversees bankruptcy matters, said he hopes the proposed changes will give people an incentive to file for Chapter 7 bankruptcy protection, which has a higher success rate than Chapter 13.
“If somebody has a lot of ticket debt, they file for a 13. That’s the sole option to get ticket debt forgiven,” Holtkamp said. “It allows people who are better suited for Chapter 7 to file for a 7 and obtain that relief that something like 95 percent of cases get.”
Daniel Lindsey, who heads the consumer practice group of LAF Chicago, formerly known as the Legal Assistance Foundation, said the proposed changes might help “some people for whom holistically it makes sense to file a 7.”
But he worried the city may be simply “creating a reverse incentive” that prompts indebted motorists into another kind of bankruptcy instead of solving the problem in a more comprehensive way.
He asked why the city doesn’t wipe away older ticket debt for all drivers. According to an analysis of the city’s ticketing databases, which were obtained by ProPublica Illinois and WBEZ through public records requests, motorists owe the city at least $1.7 billion for unpaid tickets, fines and fees for citations that are at least three years old.
“Why don’t they do that for everybody?” Lindsey asked. “Why only for people who file for bankruptcy?”
Holtkamp said the proposal is focused solely on people who are filing for bankruptcy because “we want to make sure it’s really used for people who absolutely need it, and filing for bankruptcy is a way to ensure it’s being used by someone who can’t actually pay for the tickets.”
The city is not considering modifying its payment plans, the finance department said. Currently, drivers with substantial ticket debt must make down payments of up to $1,000 to get on a plan and get back a suspended license or impounded vehicle; for many, filing for Chapter 13 bankruptcy is cheaper.
In recent weeks, some aldermen have started calling for broader changes to the city’s ticketing and debt collection programs, including some type of debt relief. Last week, Alderman Gilbert Villegas called for a sweeping overhaul of how the city punishes drivers who can’t afford to pay tickets, calling for an end to late penalties that double the underlying fines and contribute to thousands of bankruptcies filed here each year. Villegas, who represents the Northwest Side’s 36th Ward, said his proposal was triggered by ProPublica Illinois’ reporting in February.
The proposal from the city’s Law Department was included in the city’s 2019 proposed budget. After passing through the finance committee Monday, the measure will go to the full City Council for a vote next week.
The finance committee also approved proposed changes to Chicago’s vehicle sticker program designed to help low-income drivers get into compliance and avoid costly tickets. The proposals, introduced last month by City Clerk Anna Valencia, would allow drivers to buy shorter-term stickers at prorated prices. In addition, Valencia’s office, which runs the sticker program, would offer a monthlong program to waive late penalties associated with sticker purchases.
Valencia’s proposal was prompted by an investigation by ProPublica Illinois and WBEZ that found disproportionate sticker ticketing rates in black neighborhoods. The $200 citations are among the most expensive in the city, and they can rise to $488 with late penalties and collection fees.