SCOTUS Issues Opinion on Possession of Property After a Bankruptcy Petition Filing

January 19, 2021 Advisory

On Jan. 14, 2021, the United States Supreme Court issued an opinion (City of Chicago, Illinois v. Fulton et al.) that mere possession of estate property after a bankruptcy petition filing “does not violate 11 U.S.C. §362(a)(3), which operates as a ‘stay’ of ‘any act’ to ‘exercise control’ over the property of the estate.” Accordingly, if a creditor lawfully takes possession of a debtor’s asset pre-bankruptcy, the retention of that asset is not a violation of the bankruptcy stay.

In Chicago v. Fulton, Fulton had her vehicle impounded by the City of Chicago for failure to pay fines. Subsequently, Fulton filed a Chapter 13 bankruptcy petition and the City filed a proof of claim asserting it was a secured creditor. Fulton then requested the City return her vehicle but the City refused her request. The bankruptcy court found the City was required to return the vehicle, following Thompson v. General Motors Acceptance Corp., 566 F. 3d 699 (7th Cir. 2009), which held that creditors must comply with the automatic stay and return the debtor’s vehicle once a bankruptcy petition is filed. The Supreme Court granted certiorari to resolve an Appeals Court split over the issue of whether a creditor’s retention of bankruptcy estate property is a violation of the automatic stay.

Justice Alito wrote the unanimous opinion in Chicago v. Fulton, holding that the language in 11 U.S.C. §362(a)(3) provides that possessing estate property alone does not violate the bankruptcy’s automatic stay. The interpretation of the term “stay” is that it prohibits affirmative actions that would change the status quo of the estate property. For example, while holding property that was repossessed pre-bankruptcy may not necessarily violate the stay, selling a repossessed asset arguably would.

While this decision gives direction to creditors who have repossessed items pre-petition, it is important to note that the Supreme Court made clear that its decision in Chicago v. Fulton relates only to the retention of estate property under the automatic stay and that other remedies may be available that require creditors to return estate assets back to the debtor, such as turnover motions under 11 U.S.C. §542(a) (“[O]ne bankruptcy court has held that §542(a)’s turnover obligation is automatic even absent a court order.”).

While Chicago v. Fulton appears to have clarified and unified the interplay between the automatic stay and return of property repossessed pre-petition, it is always recommended to seek the advice of legal counsel to confirm how best to proceed when determining whether to retain or return repossessed collateral.

Contact Us
  • Worldwide
  • Boston, MA
  • Chicago, IL
  • Denver, CO
  • Dublin, Ireland
  • Edwardsville, IL
  • Jefferson City, MO
  • Kansas City, MO
  • Las Vegas, NV
  • London, England
  • Miami, FL
  • New York, NY
  • Orange County, CA
  • Philadelphia, PA
  • Princeton, NJ
  • Salt Lake City, UT
  • St. Louis, MO
  • Washington, D.C.
  • Wilmington, DE
abstract image of world map
Boston, MA
800 Boylston St.
30th Floor
Boston, MA 02199
Google Maps
Boston, Massachusetts
Chicago, IL
100 North Riverside Plaza
Suite 1500
Chicago, IL 60606-1520
Google Maps
Chicago, Illinois
Denver, CO
4643 S. Ulster St.
Suite 800
Denver, CO 80237
Google Maps
Denver, Colorado
Dublin, Ireland
Fitzwilliam Hall, Fitzwilliam Place
Dublin 2, Ireland
Google Maps
Edwardsville, IL
115 N. Second St.
Edwardsville, IL 62025
Google Maps
Edwardsville, Illinois
Jefferson City, MO
101 E. High St.
First Floor
Jefferson City, MO 65101
Google Maps
Jefferson City, Missouri
Kansas City, MO
2345 Grand Blvd.
Suite 1500
Kansas City, MO 64108
Google Maps
Kansas City, Missouri
Las Vegas, NV
7160 Rafael Rivera Way
Suite 320
Las Vegas, NV 89113
Google Maps
Las Vegas, Nevada
London, England
Royal College of Surgeons of England
38-43 Lincoln’s Inn Fields
London, WC2A 3PE
Google Maps
Miami, FL
355 Alhambra Circle
Suite 1200
Coral Gables, FL 33134
Google Maps
Photo of Miami, Florida
New York, NY
7 Times Square, 44th Floor
New York, NY 10036
Google Maps
New York City skyline
Orange County, CA
19800 MacArthur Boulevard
Suite 300
Irvine, CA 92612
Google Maps
Philadelphia, PA
2005 Market Street
29th Floor, One Commerce Square
Philadelphia, PA 19103
Google Maps
Philadelphia, Pennsylvania
Princeton, NJ
100 Overlook Center
Second Floor
Princeton, NJ 08540
Google Maps
Princeton, New Jersey
Salt Lake City, UT
222 South Main St.
Suite 1830
Salt Lake City, UT 84101
Google Maps
Salt Lake City, Utah
St. Louis, MO
7700 Forsyth Blvd.
Suite 1800
St. Louis, MO 63105
Google Maps
St. Louis, Missouri
Washington, D.C.
1717 Pennsylvania Avenue NW
Suite 400
Washington, DC 20006
Google Maps
Photo of Washington, D.C. with the Capitol in the foreground and Washington Monument in the background.
Wilmington, DE
1007 North Market Street
Wilmington, DE 19801
Google Maps
Wilmington, Delaware