City of Chicago, Illinois v. Fulton
Issues
After a debtor files for bankruptcy, is a creditor required to turn over property of the bankruptcy estate to the debtor or trustee under the Bankruptcy Code’s automatic stay provision if the creditor lawfully possessed the property before bankruptcy was initiated and only passively possesses the property afterwards?
This case asks the U.S. Supreme Court to determine whether an entity that passively possesses a debtor’s property must turn over that property to the bankruptcy estate under the Bankruptcy Code’s automatic stay provision. Petitioner City of Chicago argues that the automatic stay provision requires debtors and creditors to maintain the status quo as of the petition date, which, among other things, means that creditors cannot take actions to control property of the estate. Chicago maintains that passive possession does not constitute action. Further, Chicago asserts that because the automatic stay freezes the status quo, debtors must seek a court order compelling the turnover of property lawfully repossessed pre-petition. Respondents Robbin L. Fulton and others counter that the automatic stay language plainly requires that all the debtor’s property be transferred to the trustee or debtor and that passive retention is an act of restraint in violation of the automatic stay. Additionally, Fulton and others contend that the turnover duty is mandatory and does not require a court order. The outcome of this case has important implications on debtors’ and creditors’ bankruptcy rights, public safety, and the financial well-being of debtors and local governments.
Questions as Framed for the Court by the Parties
Whether an entity that is passively retaining possession of property in which a bankruptcy estate has an interest has an affirmative obligation under the Bankruptcy Code’s automatic stay, 11 U.S.C § 362, to return that property to the debtor or trustee immediately upon the filing of the bankruptcy petition.
In 2016, Petitioner City of Chicago (“Chicago”) amended its municipal code so that “[a]ny vehicle impounded by [Chicago] or its designee shall be subject to a possessory lien in favor of [Chicago] in the amount required to obtain release of the vehicle.” In Re Fulton at 920. Following this amendment, Chicago refused to return impounded vehicles to their owners if t
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Additional Resources
- Ronit J. Berkovich & Zoe Essner, Supreme Court Will Tell Us Soon If Creditor Violates Automatic Stay by Passively Retaining Debtor’s Property, Lexology (Jan. 27, 2020).