Updates in the Law
Until recently in Nebraska, a creditor was in violation of Section 362(a)(3) of the automatic stay in bankruptcy if it lawfully seized property of the debtor before the debtor filed bankruptcy but did not return the property to the debtor or trustee after the bankruptcy and continued to “exercise control” over such property.
This changed on January 14, 2021 when the United States Supreme Court published its ruling in the case of City of Chicago, Illinois v. Fulton. In this case, the Supreme Court held that the mere retention of bankruptcy estate property after the filing of a bankruptcy petition does not violate the automatic stay provision of the Bankruptcy Code which prohibits an act to exercise control over property of the bankruptcy estate.
In the Fulton case, the City of Chicago (“City”) impounded the vehicles of various individuals for failure to pay fines for vehicle infractions. Many of these individuals filed Chapter 13 bankruptcy petitions and requested that the City return the impounded vehicles. The City refused.
The bankruptcy court and the Seventh Circuit Court of Appeals held that the City’s refusal to return the vehicles constituted an “act to exercise control” over property of the bankruptcy estate and thus violated the automatic stay provision. The City appealed to the Supreme Court.
The Supreme Court overruled the Court of Appeals. Specifically, the Supreme Court reasoned that:
However, the Supreme Court did not answer a number of questions regarding a creditor’s obligation to turnover property of the estate:
Hopefully, answers to these questions will be addressed in future cases or through changes in the applicable bankruptcy laws. If you have any questions relating to this ruling or when an obligation to turn over property of a bankruptcy estate arises, please feel free to contact Sam King.