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Kelley Kronenberg Client Alert: US Supreme Court Rules Creditor does not have to Return Car Repo’d Before Bankruptcy

January 15, 2021

Today the Supreme Court released its decision in City of Chicago vs. Fulton and ruled 8 – 0 that the City did not violate the automatic stay where it held on to a vehicle repossessed pre-petition: “ We hold only that mere retention of estate property after the filing of a bankruptcy petition does not violate §362(a)(3) of the Bankruptcy Code.”  Thus, it is now clear that the passive retention of repossessed property after a bankruptcy filing does not violate the automatic stay. This decision does not change the existing law applicable in Florida under In re Kalter, which also allows creditors to retain possession under a different theory.

In Fulton, the city of Chicago (City) impounded vehicles for failure to pay fines for parking or other vehicle infractions. The debtors filed Chapter 13 and requested the City return the vehicle. The City refused, and the bankruptcy court held that the City’s refusal violated the automatic stay. The Court of Appeals affirmed and found that by retaining possession of the debtors’ vehicles after they declared bankruptcy, the City had acted “to exercise control over” respondents’ property in violation of §362(a)(3). In re Fulton, 926 F. 3d 916 (CA7 2019)

The Supreme Court focused on the language used in §362(a)(3) and agreed with the City’s argument that this provision focuses on maintaining the status quo when a bankruptcy case is filed. The Court, citing Webster’s Third New International Dictionary, found the terms “stay,” “act,” and “exercise control” “suggests that merely retaining possession of estate property does not violate the automatic stay. . . the most natural reading of these terms … 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.”

The Court acknowledged the Bankruptcy Code has a separate provision – Section 542 – which deals with turning over estate property. The Court noted that the existence of §542 makes clear that the text of §362(a)(3) does not require a creditor to automatically turn over or surrender collateral (which would essentially render  §542 superfluous). The Court also recognized that debtors have the ability to ask the Court to compel turnover of a vehicle under §542, but stated § 542 is still subject to the requirement that the debtor or trustee provide adequate protection to the creditor to obtain turnover and possession.

For more information contact Kelley Kronenberg Partner, Dennis LeVine.

 

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Kelley Kronenberg is a multi-practice business law firm with nearly 400 employees, more than 175 attorneys, and 12 locations throughout Florida and the United States. Founded in 1980, the firm is one of the fastest-growing law firms in Florida and amongst the largest in the U.S. The firm serves all types and sizes of public and private companies, including small businesses and individuals nationwide. Kelley Kronenberg has been recognized amongst the “Largest U.S. Law Firms” by the National Law Journal’s NLJ 500, Law 360 400, and Florida Trend in 2020, “America’s Top Corporate Law Firms” by Forbes and “Top 10” in NLJ’s Women’s Scorecard in 2019. The firm has been the recipient of many accolades most recently including in 2020: “Best Multi-Practice Business Law Firm – USA,” Acquisition International; “Top Workplaces,” Sun Sentinel; “Best Places to Work,” South Florida Business Journal;  “Business of the Year,” “Top 100 Private Companies,” “Top Law Firms,” and “Largest Law Firms,” South Florida Business Journal; “Largest Law Firms,” Tampa Bay Business Journal, Orlando Business Journal,  and Jacksonville Business Journal; “Biggest Law Firms in Florida,” Florida Trend; “Top 100 Law Firms,” South Florida Business & Wealth; Florida’s Largest Law Firms,” American Lawyer’s, Daily Business Review “Review 100” and “Best Law Firms,” U.S. News – Best Lawyers®. For more information, visit www.kklaw.com.

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