City of Chicago v. Fulton: What the U.S. Supreme Court Decision Means for Bankruptcy Filers
How broad are the protections associated with the automatic stay under the U.S. Bankruptcy Code, and can they require a creditor to turn over property that was repossessed shortly before a consumer’s bankruptcy filing? The recent U.S. Supreme Court decision in City of Chicago v. Fulton (2021) makes clear that a creditor who repossesses an automobile before the debtor files for bankruptcy is not required under U.S. bankruptcy law to turn over an impounded automobile once the debtor has filed for bankruptcy and the automatic stay attaches. Yet as a recent article in Auto Finance News suggests, the Court’s decision leaves some questions unanswered, particularly with regard to repossessions.
Understanding the Court’s Decision in Fulton
In City of Chicago v. Fulton, debtors had their vehicles impounded by the City of Chicago for “failure to pay fines for motor vehicle infractions.” The debtors subsequently filed for consumer bankruptcy and argued that the automatic stay required the City of Chicago to turn over the automobiles. Lower courts, including the Seventh Circuit Courts of Appeals, concluded that the City’s failure to return the automobiles constituted a violation of the automatic stay.
The U.S. Supreme Court disagreed and held that “the mere retention of estate property after the filing of a bankruptcy petition does not violate §362(a)(3) of the Bankruptcy Code.” As the Court explained, “[u]nder that provision, the filing of a bankruptcy petition operates as a ‘stay’ of ‘any act’ to ‘exercise control’ over the property of the estate.” As such, “[t]aken together, the most natural reading of these terms is that §362(a)(3) prohibits affirmative acts that would disturb the status quo of estate property as of the time when the bankruptcy petition was filed.” In other words, the automatic stay does not apply to actions taken against property prior to the filing of the bankruptcy petition.
Questions that Remain After the Fulton Decision
The Fulton decision is a relatively good one for creditors and suggests that debtors may not have certain protections associated with the automatic stay for any actions taken prior to a bankruptcy filing. However, the case does leave some questions unanswered, and the answers to those questions ultimately could be decided in favor of a debtor if they were to come up again at the U.S. Supreme Court.
To be clear, the Fulton decision did not address the question of whether retaining possession of a security interest is an attempt to collect on a debt that is owed on the item that has been retained or repossessed. Remember that the City’s security interest in the vehicles in Fulton concerned unpaid fines as opposed to debt owed on the automobiles. This question is important because it could invoke a key protection of the automatic stay and could potentially result in a case being decided differently than Fulton if a party with a security interest in an asset—because of a debt owed on that very asset—repossesses the asset prior to a bankruptcy filing and refuses to turn it over.
Seek Advice From an Oak Park Consumer Bankruptcy Attorney
Do you have questions about how the Fulton decision could affect your bankruptcy case, or do you have questions about bankruptcy and repossession? One of our experienced Oak Park consumer bankruptcy attorneys can answer your questions today. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
Top Reasons for Hiring a Consumer Bankruptcy Lawyer
Will I Have to Give Up My Smartphone and Laptop if I File for Bankruptcy?
Understanding the Court’s Decision in Fulton
In City of Chicago v. Fulton, debtors had their vehicles impounded by the City of Chicago for “failure to pay fines for motor vehicle infractions.” The debtors subsequently filed for consumer bankruptcy and argued that the automatic stay required the City of Chicago to turn over the automobiles. Lower courts, including the Seventh Circuit Courts of Appeals, concluded that the City’s failure to return the automobiles constituted a violation of the automatic stay.
The U.S. Supreme Court disagreed and held that “the mere retention of estate property after the filing of a bankruptcy petition does not violate §362(a)(3) of the Bankruptcy Code.” As the Court explained, “[u]nder that provision, the filing of a bankruptcy petition operates as a ‘stay’ of ‘any act’ to ‘exercise control’ over the property of the estate.” As such, “[t]aken together, the most natural reading of these terms is that §362(a)(3) prohibits affirmative acts that would disturb the status quo of estate property as of the time when the bankruptcy petition was filed.” In other words, the automatic stay does not apply to actions taken against property prior to the filing of the bankruptcy petition.
Questions that Remain After the Fulton Decision
The Fulton decision is a relatively good one for creditors and suggests that debtors may not have certain protections associated with the automatic stay for any actions taken prior to a bankruptcy filing. However, the case does leave some questions unanswered, and the answers to those questions ultimately could be decided in favor of a debtor if they were to come up again at the U.S. Supreme Court.
To be clear, the Fulton decision did not address the question of whether retaining possession of a security interest is an attempt to collect on a debt that is owed on the item that has been retained or repossessed. Remember that the City’s security interest in the vehicles in Fulton concerned unpaid fines as opposed to debt owed on the automobiles. This question is important because it could invoke a key protection of the automatic stay and could potentially result in a case being decided differently than Fulton if a party with a security interest in an asset—because of a debt owed on that very asset—repossesses the asset prior to a bankruptcy filing and refuses to turn it over.
Seek Advice From an Oak Park Consumer Bankruptcy Attorney
Do you have questions about how the Fulton decision could affect your bankruptcy case, or do you have questions about bankruptcy and repossession? One of our experienced Oak Park consumer bankruptcy attorneys can answer your questions today. Contact the Emerson Law Firm for more information.
See Related Blog Posts:
Top Reasons for Hiring a Consumer Bankruptcy Lawyer
Will I Have to Give Up My Smartphone and Laptop if I File for Bankruptcy?
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