Upon the filing of a petition under title 11 of the United States Code (the “Bankruptcy Code”), creditors and other parties in interest are generally automatically stayed from taking any action against a debtor or property of the estate. The estate includes “all legal or equitable interests of the debtor in property as the commencement of the case,” with some exceptions. The automatic stay is “one of the most important protections and powerful tools available to a debtor in a bankruptcy.”
It is well established that a creditor cannot take affirmative steps against a debtor or estate property. Prior to the United States Supreme Court’s ruling in City of Chicago v. Fulton (herein “Fulton”), the courts were split as to whether refraining from returning property of the estate seized prior to a bankruptcy filing violated the automatic stay. In Fulton, the Supreme Court held that the city was not required to turn over property of the estate to the debtor in a case where property of the estate, such as a vehicle, had been impounded or repossessed by the city prior to the bankruptcy filing. “Mere retention of estate property after the filing of a bankruptcy petition does not violate §362(a)(3) of the Bankruptcy Code.”
This memorandum discusses the circuit split that existed prior to the recent Supreme Court’s decision in City of Chicago v. Fulton, and the decision itself. Additionally, this memorandum explores what qualifies as a violation of the automatic stay and what remedies are available to those who have suffered from a willful violation of the stay.