U.S. SUPREME COURT FINDS CREDITOR’S | Key Points

  1. The United States Supreme Court reversed the holdings of several bankruptcy courts and federal appellate courts in its recent holding in City of Chicago, Illinois v. Fulton, 19-357, 2021 WL 125106 (U.S. Jan. 14, 2021). The Court reviewed several bankruptcy cases which involved the City of Chicago (“City”) impounding the debtor’s vehicle “for failure to pay fines for motor vehicle infractions.” Each debtor “filed a Chapter 13 bankruptcy petition and requested that the City return his or her vehicle. The City refused, and in each case a bankruptcy court held that the City’s refusal violated the automatic stay [imposed by the Bankruptcy Code].” The City appealed to the 7th Circuit Court of Appeals which “affirmed all of the judgments in a consolidated opinion.”

  2. The Supreme Court reversed based on the plain language of § 362(a)(3). The Court reasoned the prohibition imposed by the “‘stay’ of ‘any act’ to ‘exercise control’” over estate property was a prohibition on “affirmative acts that would disturb the status quo of estate property as of the time…[when the petitioner filed for bankruptcy].” The Court concluded “§ 362(a)(3) halts any affirmative act” to alter the status quo, but based on dictionary definitions of the key terms “mere retention of property” does not constitute an “affirmative act.”

  3. Justice Sotomayor wrote a lengthy concurring opinion wherein he agreed with the majority that “passive retention of property lawfully seized prebankruptcy” did not violate § 362(a)(3); however, he stated that the City’s retention of the vehicles “may very well violate” other provisions of the bankruptcy code such as § 362(a)(4) or § 542(a). The former prohibits a creditor from acting “to collect, assess, or recover a claim against a debtor” and the latter requires a creditor “to ‘deliver’ estate property to the trustee or debtor.”

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