The
following question has been posed to the Supreme Court of the
United States in City Of Chicago v. Robbin L.Fulton, et. al.:
Whether an entity
that is passively retaining possession of property in which a
bankruptcy estate has an interest has an affirmative obligation under
the Bankruptcy Code’s automatic stay, 11 U.S.C § 362, to
return that property to the debtor or trustee immediately up-on the
filing of the bankruptcy petition.
A
filed bankruptcy petition does 2 things. First, it creates a
bankruptcy estate which holds all of the debtor's rights to property,
or as the bankruptcy code states, all legal or equitable interests in
property. Secondly, an automatic stay automatically operates to
automatically stop creditors from collecting debts. including “any
act … to exercise control over property of the estate,”
referring to the bankruptcy estate. Because this automatically
operates, it does not require a court order, and a creditor violating
this stay provision may be subject to sanctions.
However,
there is a competing code provision providing turnover of property of
the bankruptcy estate requires a court order, and is not operate
automatically like the automatic stay. An action call an adversarial
proceeding has to be filed with the Court requesting the turnover of
property. This allows for the debtor to provide a defense. The
creditor can also be sanctioned, but only after the Court has ruled.
The
Courts are divided. There are five courts of appeals—the
Second, Seventh, Eighth, Ninth and Eleventh Circuits—align with
the first position of the automatic stay imposing a duty to
automatically turn over property, while the Tenth and District of
Columbia align with the second position of requiring a court order.
In
this case, the City of Chicago lawfully impounded a vehicle because
of unpaid fines and penalties after the debtor was caught driving on
a suspended license. When the city initially filed its claim, it was
filed as unsecured, then amended after confirmation of the Chapter 13
Plan to reflect a secured claim.
So,
the question before the Court is fairly straight forward; when must
turnover occur? Immediately upon the filing of the bankruptcy
petition, or after an adversarial proceeding?
Status
of case: Currently awaiting the Court's decision as to whether to it
will grant the petition for writ of certiorari.
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