In January 2021, we published an eAlert titled “Who Keeps the Repossessed Car After Bankruptcy Filing? U.S. Supreme Court Decides in Favor of Secured Creditors.” In that eAlert, we provided an overview of the U.S. Supreme Court’s decision in City of Chicago v. Fulton, that a creditor’s retention of a debtor’s property after the filing of a bankruptcy petition does not violate the automatic stay under Section 362(a)(3) of the Bankruptcy Code.
However, the U.S. Supreme Court did not determine whether retention of a debtor’s property constitutes a stay violation under other subsections of Section 362(a), namely Sections 362(a)(4) and 362(a)(6). After the case was returned to the Seventh Circuit Court of Appeals, the Court of Appeals alluded to certain language in the concurrence written by Supreme Court Justice Sonya Sotomayor, leaving the door open to the possibility of a creditor being required to return a debtor’s property under other subsections of Section 362, noting “that the Court has not decided whether and when § 362(a)’s other provisions may require a creditor to return a debtor’s property.” Therefore, the Seventh Circuit Court of Appeals held that “the question of whether or not the City’s conduct was impermissible on grounds other than § 362(a)(3) remains unresolved.” The Court of Appeals remanded the cases to the bankruptcy court.
As noted in the initial eAlert, creditors must proceed with caution and focus on maintaining the status quo with property of the debtor’s estate. While the U.S. Supreme Court held that retaining a repossessed car does not constitute an act to obtain possession of estate property or an exercise of control over estate property under § 362(a)(3), the Court of Appeals’ decision warns that the analysis does not end there, as retaining a repossessed car could constitute a violation of the Automatic Stay under § 362(a)(4) or under § 362(a)(6).
Given the uncertainty surrounding the interpretation of stay violations, the best practice is to communicate with your bankruptcy counsel if and when a debtor files bankruptcy. For more information, please contact Dennis Loughlin, Andrew Reside or a member of Warner’s Bankruptcy, Restructuring and Insolvency Law Practice Group.