Case No. 19-357 | 7th Cir.
October 13, 2020
Preview by Emma Liggett, Online Editor
Chicago’s Municipal Code allows the city to impound vehicles for minor violations such as failure to pay a parking ticket or properly display a city tax sticker. Three bankruptcy cases, consolidated into Chicago v. Fulton, involve vehicle seizures by the City of Chicago for unpaid tickets. After the seizures, each respondent filed a petition for Chapter 13 bankruptcy and a repayment plan. Under the Bankruptcy Code’s automatic stay, 11 U.S.C. § 362(a)(3) (2018), a creditor is obligated to deliver any seized property belonging to the bankruptcy estate to a debtor. However, Chicago refused to return the vehicles. The issue is whether 11 U.S.C. § 362(a)(3) places an affirmative obligation on Chicago to immediately return this property.
Respondents argue that in refusing to return their vehicles, Chicago “acted” “to exercise control” over their property in violation of § 362(a)(3). Brief for Respondents at 14, Chicago v. Fulton, No. 19-357 (U.S. filed Mar. 4, 2020). Chicago argues that the automatic stay “freezes the state of affairs that exist” when an individual files for Chapter 13 bankruptcy, and does not impose an affirmative obligation on creditors passively holding property. Reply Brief for Petitioners at 4, Chicago v. Fulton, No. 19-357 (U.S. filed Apr. 8, 2020). Because Chicago seized the vehicles before respondents filed their Chapter 13 petitions, its retention of the property is a non-action permitted by § 362(a)(3). See id. Additionally, Chicago argues that interpreting § 362(a)(3) in this way renders the Bankruptcy Code’s obligatory turnover provision, 11 U.S.C. § 542(a), superfluous, counseling against finding an obligation under § 362(a)(3). Respondents counter that “continuing to exercise” control over their property is an action subject to the automatic stay. Brief for Respondents at 15. Furthermore, Respondents argue that § 542(a) acts in conjunction with § 362(a)(3), not in place of it, and that the city’s failure to return the property effectively flouts both provisions. See id. at 15–16.
Unforgiving collection practices like Chicago’s are widespread, used by states and cities across the country. If the Bankruptcy Code’s purpose is to “facilitate the debtor’s fresh start,” then the retention of seized cars severely frustrates that goal. Id. at 3. Without a car, individuals are strained to accomplish basic tasks like driving to work, which also impedes their abilities to make payments to creditors. Furthermore, 9% of Chicago’s operating budget is made up of the collection of vehicle fines, which calls into question the true purpose of vehicle seizures. See id. at 13.
The Court’s interpretation of what constitutes an act to exercise control in the context of § 362(a)(3) has significant implications for the functioning of the bankruptcy system and its ability to ease the financial pressures facing millions of Americans.