When Fulton came down in January, the Supreme Court decided that debtors are not entitled to regain possession of impounded cars under Section 362(a)(3) simply by filing chapter 13 petitions. City of Chicago v. Fulton, 141 S. Ct. 585, 208 L. Ed. 2d 384 (Sup. Ct. Jan. 14, 2021).
Debtors may have lost a battle under Section 362(a)(3), but the Seventh Circuit said on April 12 that they still might win the war under Sections 362(a)(4) and (a)(6).
Why? Because the Supreme Court ruled only on Subsection 362(a)(3), not on Subsections (a)(4) and (a)(6).
The Four Appeals on Impounded Cars
Four chapter 13 cases came up together on direct appeal to the Seventh Circuit. In all of the cases, the debtors had filed chapter 13 petitions and asked the City of Chicago to return their impounded cars. The city refused unless and until the owners paid their outstanding parking tickets and traffic fines.
The Seventh Circuit upheld the bankruptcy courts in all four cases, ruling that retention of the cars violated Section 362(a)(3) as an “exercise” of “control over property of the estate.”
Two of the debtors had also argued there were violations of Subsections (a)(4) and (a)(6), for enforcing a lien against property of the estate or acting to recover a claim. Having made a dispositive ruling on Subsection (a)(3), the Seventh Circuit did not opine on the other two subsections.
The Supreme Court granted certiorari to decide the question under Subsection (a)(3). To read ABI’s report about the high court’s reversal and remand, click here.
The Supreme Court’s Mandate
On remand, Chicago wanted the Seventh Circuit to reverse the four bankruptcy court orders summarily and vacate the sanctions for violating the automatic stay.
In a nonprecedential, unsigned opinion on April 12, the Seventh Circuit quoted the Supreme Court for saying that the justices were declining to “settle the meaning of” Subsections (a)(4) and (a)(6). Id., 141 S. Ct. at 592.
In more detail, the appeals court alluded to the concurrence by Justice Sonia Sotomayor. The circuit quoted her as writing separately “to emphasize that the Court ha[d] not decided whether and when § 362(a)’s other provisions may require a creditor to return a debtor’s property.” Id.
The Seventh Circuit interpreted the Supreme Court opinions as not “foreclose[ing] an adverse finding against the City, on other grounds.” The appeals court again quoted Justice Sotomayor, this time for noting that the “City’s conduct may very well violate one or both of these other provisions.” Id.
Interpreting the mandate from the Supreme Court on remand, the Seventh Circuit decided that “the question of whether or not the City’s conduct was impermissible on grounds other than § 362(a)(3) remains unresolved.”
The appeals court remanded the two cases to the bankruptcy court for further proceedings where Subsections (a)(4) and (a)(6) had been raised, but remanded with instructions to vacate the judgments in the other two.
When Fulton came down in January, the Supreme Court decided that debtors are not entitled to regain possession of impounded cars under Section 362(a)(3) simply by filing chapter 13 petitions. City of Chicago v. Fulton, 141 S. Ct. 585, 208 L. Ed. 2d 384 (Sup. Ct. Jan. 14, 2021).
Debtors may have lost a battle under Section 362(a)(3), but the Seventh Circuit said on April 12 that they still might win the war under Sections 362(a)(4) and (a)(6).
Why? Because the Supreme Court ruled only on Subsection 362(a)(3), not on Subsections (a)(4) and (a)(6).
The Four Appeals on Impounded Cars
Four chapter 13 cases came up together on direct appeal to the Seventh Circuit. In all of the cases, the debtors had filed chapter 13 petitions and asked the City of Chicago to return their impounded cars. The city refused unless and until the owners paid their outstanding parking tickets and traffic fines.
The Seventh Circuit upheld the bankruptcy courts in all four cases, ruling that retention of the cars violated Section 362(a)(3) as an “exercise” of “control over property of the estate.”
Two of the debtors had also argued there were violations of Subsections (a)(4) and (a)(6), for enforcing a lien against property of the estate or acting to recover a claim. Having made a dispositive ruling on Subsection (a)(3), the Seventh Circuit did not opine on the other two subsections.
The Supreme Court granted certiorari to decide the question under Subsection (a)(3).