Chicago v. Fulton

City of Chicago v. Fulton, 19-357 (Jan. 14, 2021).  Once a bankruptcy petition is filed, section 362(a) of the Bankruptcy Code imposes an automatic stay on creditor enforcement actions against the debtor and its property.  Generally, bankruptcy courts interpret section 362 broadly in favor of debtors.  But what happens when a debtor’s property is in the possession of a creditor at the time of filing?  For example, where a local government repossesses a vehicle for unpaid assessments, does the governmental unit violate the automatic stay if it refuses to turn over the vehicle once the owner files for bankruptcy?

In an abundance of caution, creditors have often returned property to a debtor upon filing lest the failure to do so should violate the automatic stay. Now, the Supreme Court of the United States has held that section 362(a) does not forbid a creditor’s retention of a debtor’s property so long as the creditor did not obtain possession by some post-petition affirmative act.  However, the Bankruptcy Code provides debtors and trustees with a mechanism for seeking the turnover of estate property.  If you are impacted by such issues, the Law Offices of Christopher L. Young can help.