City of Chi. v. Fulton - 141 S. Ct. 585 (2021)

Rule:

The language used in 11 U.S.C.S. § 362(a)(3) suggests that merely retaining possession of estate property does not violate the automatic stay. Under that provision, the filing of a bankruptcy petition operates as a "stay" of "any act" to "exercise control" over the property of the estate. Taken together, the most natural reading of these terms - "stay," "act," and "exercise control" - is that § 362(a)(3) prohibits affirmative acts that would disturb the status quo of estate property as of the time when the bankruptcy petition was filed.

Facts:

The City of Chicago, Illinois impounded each respondent’s vehicle for failure to pay fines for motor vehicle infractions. Subsequently, each respondent filed a Chapter 13 bankruptcy petition and requested that the city return the vehicle. The city refused to return the vehicles. The bankruptcy court held that the city’s refusal violated the automatic stay. The Seventh Circuit affirmed, concluding that by retaining possession of the vehicles the city had acted “to exercise control over” respondents' property in violation of §362(a)(3) of the Bankruptcy Code. 

Issue:

By retaining possession of the respondents’ vehicles, did the City of Chicago violate the automatic stay provision of 11 U.S.C.S. § 362(a)(3)?

Answer:

No.

Conclusion:

The Court held that the mere retention of estate property after the filing of a bankruptcy petition did not violate the automatic stay provision of 11 U.S.C.S. § 362(a)(3). According to the Court, reading § 362(a)(3) to cover mere retention of property, as respondents advocated, would create at least two serious problems. First, it would render the central command of 11 U.S.C.S. § 542 largely superfluous even though § 542 appeared on its face to be the governing provision. Second, respondents' reading would render the commands of § 362(a)(3) and § 542 contradictory. It would be an odd construction of § 362(a)(3) to require a creditor to do immediately what § 542 specifically excused.