In an unanimous decision, the United States Supreme Court reversed a decision of the Seventh Circuit Court of Appeals and resolved a split among the circuits, held that the “mere retention of property is does not violate the [automatic stay in ] §362(a)(3).” The case is City of Chicago v. Fulton, 19-357.
Four cases went to the Seventh Circuit together. The chapter 13 debtors in those four cases owed between $4,000 and $20,000 in unpaid parking fines. Before bankruptcy, the city had impounded their cars. Before bankruptcy, the city would not release impounded cars unless the fines were paid.
After filing their chapter 13 petitions, the debtors demanded the return of their cars. The city refused to release the cars unless the fines and other charges were paid in full.
The debtors mounted contempt proceedings in which four different bankruptcy judges held that the city was violating the automatic stay by refusing to return the cars. After being held in contempt, the city returned the cars but appealed.
The Second, Seventh, Eighth, Ninth and Eleventh Circuits impose an affirmative duty on creditors to turn over repossessed property after a bankruptcy filing.
The Third, Tenth and District of Columbia Circuits held that the retention of property only maintains the status quo. For those circuits, a stay violation requires an affirmative action. Simply holding property is not an affirmative act, in their view.
Justice Alito who authored the decision, said that the case turned on the “prohibition [in Section 362(a)(3)] against exercising control over estate property.” He said the language “suggests that merely retaining possession of estate property does not violate the automatic stay.” Justice Alito did note in his decision that the ruling did not “settle the meaning of other subsections of §362(a)” and did “not decide how the turnover obligation in §542 operates.”
In a concurring opinion, Justice Sotomayor wrote that the “Court has not decided whether and when §362(a)’s other provisions may require a creditor to return a debtor’s property.”