## Facts

- Robbin Fulton and several other individuals (the debtors) incurred fines for motor-vehicle infractions and failed to pay them.
- The City of Chicago (the City), seeking payment of the outstanding fines, impounded the debtors’ vehicles before any bankruptcy filings.
- Each debtor later filed a Chapter 13 bankruptcy petition, proposing to repay creditors over time through a court-approved plan.
- After filing, each debtor requested that the City return the impounded vehicle, contending that the Bankruptcy Code’s automatic stay required immediate return.
- The City refused to return the vehicles and continued to hold them after the petitions were filed.
- In each case, the bankruptcy court ruled that the City’s postpetition refusal violated the automatic stay, relying on 11 U.S.C. § 362(a)(3).
- The Seventh Circuit consolidated the cases and affirmed, holding that retaining possession of the vehicles postpetition was an “act … to exercise control over” property of the estate under § 362(a)(3).
- The Supreme Court granted certiorari to resolve a circuit split on whether passive retention of estate property violates § 362(a)(3).

## Issues

1. Does a creditor violate the automatic stay in 11 U.S.C. § 362(a)(3) by passively retaining possession of a debtor’s property that was seized prepetition, after the debtor files a bankruptcy petition?
2. Does § 362(a)(3) itself impose an automatic obligation to turn over estate property immediately upon filing, or is turnover instead governed by the Bankruptcy Code’s turnover provision, 11 U.S.C. § 542(a)?

## Decision

- The Supreme Court vacated the Seventh Circuit’s judgment and remanded (8–0). Justice Barrett did not participate.
- The Court held that “mere retention of estate property after the filing of a bankruptcy petition does not violate” § 362(a)(3).
- The Court read § 362(a)(3) to prohibit affirmative acts that would disturb the petition-date status quo regarding estate property, not passive possession of property already held.
- The Court did not decide whether, or on what timetable, § 542(a) requires turnover in these circumstances, and it did not decide whether other subsections of § 362(a) might apply to the City’s conduct on remand.

## Legal Principles

- Section 362(a)(3) stays “any act” to obtain possession of estate property or “to exercise control” over it; the better reading treats “act” as requiring affirmative conduct, not continued retention of property seized before the petition.
- The term “stay” ordinarily operates as a prohibition on new conduct that would change the status quo at filing, rather than as a command to take affirmative steps to return property.
- Reading § 362(a)(3) to require immediate turnover would make much of § 542(a)’s turnover scheme redundant, including the limits and conditions Congress placed on turnover.
- The Bankruptcy Code’s turnover mechanism is addressed in § 542(a); a debtor seeking return of property held by a creditor must generally proceed through that provision (and any related procedures and defenses), rather than treating § 362(a)(3) as a standalone turnover rule.
- The Court’s holding is confined to § 362(a)(3); other Bankruptcy Code provisions may still restrict creditor conduct in particular cases, but passive retention alone does not violate § 362(a)(3).

## Conclusion

City of Chicago v. Fulton holds that a creditor’s continued possession of a debtor’s vehicle impounded before the bankruptcy filing, without additional postpetition action, is not an “act … to exercise control” that violates the automatic stay under § 362(a)(3). The Supreme Court vacated the Seventh Circuit’s contrary rule and remanded, leaving questions about turnover under § 542(a) and any other possible Bankruptcy Code remedies to further proceedings.


City of Chicago v. Fulton, 141 S. Ct. 585 (2021)