Supreme Court Breaks Divide: Mere Retention Of Debtor Property Is Not A Stay Violation

Moritt Hock & Hamroff LLP

The United States Supreme Court has resolved a split among lower courts on the issue of whether a lessor who repossesses debtor collateral on eve of bankruptcy violates the automatic stay by failing to surrender such property immediately following the bankruptcy filing.

In City of Chicago, IL v. Fulton, 141 S.Ct. 585 (2021), the Court ruled unanimously that retaining possession of a debtor’s property after a bankruptcy filing is not an act to exercise control over the bankruptcy estate prohibited by the automatic stay. In the matter before the Court, individuals who had filed Chapter 13 bankruptcy petitions requested that the City return their vehicles, which had been impounded prior to the bankruptcy cases for failure to pay motor vehicle fines. The Court reversed the lower courts’ rulings, which had found that the City’s refusal to return the vehicles violated the automatic stay.

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