SCOTUS Opinion: Passive Retention of a Debtor’s Property Does Not Violate Bankruptcy Automatic Stay

After Chicago impounded their vehicles for unpaid fines, the owners filed petitions for bankruptcy. The Bankruptcy Code automatically creates an estate comprising of all of the debtor’s property interests, requires those in possession of such property to deliver it to the trustee, and creates a stay prohibiting “any act to obtain possession of the property of the estate or of property from the estate or to exercise control over property of the estate.” The debtors asked Chicago to return their vehicles, and the City refused. The bankruptcy court held that each such refusal violated the Code, and the Seventh Circuit affirmed.

The Court, in an 8-0 opinion by Justice Alito (Justice Barrett recused), reversed, holding that “mere retention of estate property after the filing of a bankruptcy petition” does not violate the Code. It only prohibits further affirmative acts that disturb the “status quo” at the time the petition is filed. The Court found that a blanket requirement to return property contradicted other provisions that carved out exceptions to the turnover command. Justice Sotomayor filed a concurrence to emphasize that the decision did not decide whether the return of property might be required in other circumstances, and that the debtors may have cause to demand the return of their vehicles under those alternatives.

A link to the decision in Chicago v. Fulton is here: