## Facts

- The City of Chicago impounded vehicles for unpaid parking tickets and traffic-related fines and required payment of fines and impoundment costs to release them.
- Chicago amended its municipal code to assert a possessory lien on impounded vehicles for the full amount needed to secure release.
- Robbin L. Fulton, Jason S. Howard, George Peake, and Timothy Shannon each had a vehicle impounded and later filed Chapter 13 petitions.
- After filing, each debtor demanded return of the vehicle; the City refused unless the outstanding fines were paid in full, asserting continued possession was needed to keep its lien perfected.
- Bankruptcy courts ordered turnover and imposed sanctions, concluding the City’s post-petition retention violated the automatic stay.
- The City appealed; the appeals were consolidated in the Seventh Circuit.

## Issues

1. Whether a creditor’s post-petition retention of estate property already in its possession constitutes an “act … to exercise control” over estate property barred by 11 U.S.C. § 362(a)(3).
2. Whether the City’s asserted justifications fit within the automatic-stay exceptions in 11 U.S.C. § 362(b)(3) (perfection/maintenance of liens) or § 362(b)(4) (police and regulatory power).
3. How 11 U.S.C. § 362(a)(3) interacts with 11 U.S.C. § 542(a)’s turnover obligation when the creditor possessed the property on the petition date.

## Decision

- The Seventh Circuit affirmed the bankruptcy courts’ turnover and sanctions orders.
- The court held the City’s refusal to return the vehicles after the Chapter 13 filings violated § 362(a)(3) as an exercise of control over property of the estate.
- The court declined to overturn circuit precedent requiring creditors to return a debtor’s vehicle upon the bankruptcy filing absent stay relief.
- The court held § 362(b)(3) did not permit retention to maintain perfection of the City’s lien because the City could seek protection through bankruptcy procedures rather than hold the cars.
- The court held § 362(b)(4) did not apply because the retention functioned as debt collection leverage rather than enforcement of public safety regulation.

## Legal Principles

- Under § 362(a)(3), post-petition retention of estate property can qualify as prohibited “exercise [of] control” when used to pressure payment of prepetition debt.
- A creditor holding estate property at filing must comply with the automatic stay and may be required to relinquish possession unless it obtains relief from the stay.
- Section 542(a) supplies a turnover mechanism that, in this approach, reinforces the stay’s bar on keeping estate property as collection leverage.
- The lien-perfection exception in § 362(b)(3) does not necessarily authorize continued possession where adequate-protection or stay-relief procedures are available.
- The police-and-regulatory exception in § 362(b)(4) does not apply where the government action is primarily debt-collection oriented rather than regulatory.

## Conclusion

The Seventh Circuit held that Chicago violated the automatic stay by keeping Chapter 13 debtors’ impounded vehicles after the petition date to force payment of fines, rejecting claimed stay exceptions and treating turnover as required to end continued control over estate property.


In re Fulton, 926 F.3d 916 (7th Cir. 2019)