Chicago v. Fulton

Justia Summary

The debtors each filed a bankruptcy petition and requested that the city return his vehicle, which had been impounded for failure to pay fines. The filing of a bankruptcy petition automatically “creates an estate,” 11 U.S.C. 541(a), that is intended to include any property made available by other provisions of the Bankruptcy Code. Section 542 provides that an entity in possession of bankruptcy estate property “shall deliver to the trustee, and account for” that property. The filing of a petition also automatically “operates as a stay, applicable to all entities,” of efforts to collect prepetition debts outside the bankruptcy forum, section 362(a), including “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.”

Vacating a Seventh Circuit holding, the Supreme Court held that the mere retention of estate property after the filing of a bankruptcy petition does not violate section 362(a). That section prohibits affirmative acts that would disturb the status quo of estate property as of the time when the bankruptcy petition was filed. Reading section 362(a)(3) to cover mere retention of property would contradict section 542, which carves out exceptions to the turnover command. Under the debtors’ reading, an entity would be required to turn over property under section 362(a)(3) even if that property were exempt from turnover under section 542.