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“Dude, Where’s My Car?”*: What City of Chicago v. Fulton means for Debtors attempting to retrieve their motor vehicle upon filing a Chapter 13 Bankruptcy.

Case Summary By: Alex R. Hess, of Alex R. Hess Law Group

On January 14, 2021, the Supreme Court issued an 8-0** decision that changes when a debtor can expect to receive his or her car back upon filing a Chapter 13 bankruptcy.  It also provides a new standard when determining automatic stay violations for creditors in the possession of collateral/Debtor’s personal property.  In short, Fulton provides a new interpretation as to the “status quo” positions of debtor and creditor, in addition to altering a motor vehicle custodian’s obligations to the estate upon the filing of a Chapter 13 bankruptcy.  Practically speaking, this decision is a major change for consumer debtor’s practitioners and changes the answer to the often-asked question from a Debtor client: Once my bankruptcy case is filed, how soon do I have to wait until they release my car back to me?

I. New Automatic Stay Violation Standard.

The Bankruptcy Court found that the City’s refusal to turn over the Debtor’s vehicle once a Chapter 13 petition was filed was a willful violation of the automatic stay.  The Seventh Circuit Court of Appeals affirmed.  The Supreme Court in Fulton reversed, and in doing so, altered the stay violation standard: [T]he language of §362(a)(3) implies that something more than merely retaining power is required to violate the disputed provision.  Id. at p. 4.  By application of this proposition, the Court’s holding issues a new standard for an automatic stay violation:

We hold only that mere retention of estate property after the filing of a bankruptcy petition does not violate §362(a)(3) of the Bankruptcy Code.

II. Facts and Concurrence Analysis.

Fulton is an easily readable decision and concurrence that highlights good policy reasons to help debtors, but unfortunately the holding provides little to no help for debtors.  The respondent finds himself with his motor vehicle in City of Chicago impound for unpaid parking and red-light tickets.  Though respondent lived in Chicago, he relied upon his vehicle in order to get to and from work in Joliet, Illinois, a 45-mile trip each way.  Justice Sotomayor points out in her concurrence two important points: (1) having a car is essential to maintaining employment in this case; and (2) not releasing the car to Debtor upon the bankruptcy filing put his Chapter 13 in jeopardy because he could not get to and from work, may then be unable to earn income and, consequently, ineligible to be a Chapter 13 debtor.  Justice Sotomayor recognizes the importance of a Chapter 13 debtor maintaining employment, retaining possession of his property and thus being able to fund a Chapter 13 repayment plan.  Lastly, Justice Sotomayor couches her policy goals in a fundamental principal of Bankruptcy: all creditors are to be treated equally.  As the Justice reasons: “By denying [Respondent] access to the vehicle he needed to commute to work, the City jeopardized his ability to make payments to all his creditors, the City included.”  Concur. p. 2 (Sotomayor, J.) (emphasis on all appears in Justice Sotomayor’s concurrence).

Despite these reasons and general policies that support immediately releasing a vehicle to the Debtor upon filing a Chapter 13 petition, Justice Sotomayor recognizes the importance of creditor’s interests that condition return upon adequate protection needed to protect all creditors, similar to the policy of allowing the Debtor to work to pay back all creditors.  By way of demonstrating that a creditor has “adequate protection” before turnover, Justice Sotomayor suggests that perhaps a “debtor may need to demonstrate that her car is sufficiently insured.”  Concur. p. 4.  Proving adequate insurance on secured property or important estate assets (property and casualty insurance for a home, or motor vehicle insurance) is already a requirement in the U.S. Bankruptcy Court District of Massachusetts for each Chapter 13 case.  However, given this suggestion by Justice Sotomayor, it may now be considered good practice to file evidence of motor vehicle insurance immediately upon the filing if debtor’s counsel is then tasked with turnover of the Debtor’s motor vehicle as part of the need for filing.

III. The 8-0 Majority Decision and Analysis.

Unlike Justice Sotomayor’s concurrence, the majority decision provides a much more sterile and straightforward analysis of the bankruptcy code verbiage relying on the plain meaning rule and legislative intent in determining what will be the new “status quo.”  Both the Bankruptcy trial court and Circuit Court held that the City’s refusal to release the Debtor’s car was, in fact, a violation of the automatic stay.  Prior to Fulton, most bankruptcy practitioners might also take that position, that a refusal to release property of the estate upon the filing of a Chapter 13 filing was a willful violation of the automatic stay provision.  But that’s not the case anymore.

At the filing of the Fulton Chapter 13 bankruptcy, Debtor’s car was in Chicago impound for $5,393.27 in tickets and fees.  Fulton, 592 U.S. at p. 2 (Sotomayor, J. concurring).  According to Justice Alito writing for the majority, the automatic stay provision prohibits “any act” to “exercise control” over the property of the estate.  Id. at p. 2.  “Taken together, the most natural reading of these terms” prohibits affirmative acts that would disturb the status quo of estate property as of the petition date.  Id.  When the Court breaks down the words to their plain meaning, it finds the following:

An “act” is something done or performed citing Black’s Law Dictionary;

To “exercise” means “to bring into play” or “make effective in action” citing Webster’s Dictionary.

With these definitions, the Court finds that the automatic stay “halts any affirmative act that would alter the status quo as of the time of the filing of a bankruptcy petition.”  Fulton, 592 U.S. at p. 4. 

IV. Potential Future Litigation and Conclusion.

Fulton’s immediate effect will embolden creditors that possess motor vehicles, or perhaps even more broadly, collateral, to refuse turnover absent proof of insurance, demanding adequate protection, or perhaps simply take the position that holding onto the collateral it possessed prior to the bankruptcy filing is simply the status quo of the case and not an automatic stay violation.  The practical effect is a pitfall for debtors that seek a fresh start and file a bankruptcy in order to get their property back in order to carry out the terms of a Chapter 13 reorganization plan.  While Fulton may provide additional protection to creditors, it provides a burden to a Debtor bar as it may require debtor’s counsel to provide additional documents, negotiate with an obstinate creditor, and work harder for turnover at the beginning of a case.  Where a creditor refuses to turnover Debtor’s car at the beginning of a Chapter 13 filing, the proceeding is facing the prospect of failure.  As Justice Sotomayor reasons, debtors may require a vehicle to commute to and from work, not to mention family obligations (e.g. drop off and pick the kids up from school, grocery shopping, taking care of an elderly parent, etc.).  Without a car, a debtor may face the prospect of missing work, losing hours at work, and ultimately being fired for lack of reliable transportation.  The effects of this may be felt disproportionally in “at will” employment states like Massachusetts, where low-income and hourly-wage workers are most at risk for being replaced and/or fired. 

What does the future of bankruptcy litigation hold after FultonFulton involves a municipal impound lot, and fines/fees for unpaid parking and red-light tickets.  Municipalities are permitted to ticket, tow, and impound vehicles for statutory and ordinance violations.  The same is not true for private tow companies, non-municipal entities, or secured creditors (companies) simply holding collateral.  Possession is not nine-tenths of the law, despite the adage.  Property belongs to the estate upon the filing of a bankruptcy petition and creation of the estate.  The opening line of Fulton emphasizes this: The filing of a petition under the Bankruptcy Code automatically “creates an estate” that, with some exceptions, comprises “all legal or equitable interests of the debtor in property as of the commencements of the case.”  Fulton, 592 U.S. ____ (2021), (Syllabus).

Fulton may unintentionally increase the amount of turnover litigation, whether it be Debtor filing a motion for turnover or a Trustee filing an adversary proceeding to recover estate property from an unrelenting creditor.  While the Court addresses these potential consequences, Justice Sotomayor, in an example of judicial restraint, identifies the parties responsible to remedy this:

Ultimately, however, any gap left by the Court’s ruling today is best addressed by rule drafters and policymakers, not bankruptcy judges. It is up to the Advisory Committee on Rules of Bankruptcy Procedure to consider amendments to the Rules that ensure prompt resolution of debtors’ requests for turnover under §542(a), especially where debtors’ vehicles are concerned. Congress, too, could offer a statutory fix, either by ensuring that expedited review is available for §542(a) proceedings seeking turnover of a vehicle or by enacting entirely new statutory mechanisms that require creditors to return cars to debtors in a timely manner.

Fulton, 592 U.S. at pp. 3-4 (Sotomayor, J. concurring).

The Bankruptcy Courts are already operating at capacity, and we have yet to truly see the fallout from COVID-19 business closures and individual petitions once CARES Act, unemployment and other assistance programs dry up or are discontinued.  Beginning some Chapter 13 filings with turnover litigation is not ideal for the court, Trustee or debtor’s counsel.  Moreover, it would be doubly disappointing to see Debtors being fired from gainful employment simply because an impound lot refuses to return the Debtor’s vehicle in reliance upon Fulton.  Holding hostage a debtor’s vehicle could have considerable consequences on the outcome of a debtor’s Chapter 13 case.  Whether we see an increase in litigation from the debtors’ side or the Trustee’s side, it still leaves the debtor asking “Dude, where’s my car?”



*“Dude, Where’s My Car?” is a 2000 film starring Ashton Kutcher and Seann William Scott on an adventure to find their lost car.

**Concurrence written by Sonia Sotomayor.  Justice Amy Coney Barrett did not assume her seat until October 27, 2020, after oral arguments in this case were heard on October 13, 2020, and thus did not participate in this decision.

BBA Webinar: Speed Networking with Bankruptcy Attorneys Online Wed., 12/16 5:30-7pm

Description:

The BBA presents live webinars and virtual events via Zoom. Please register for this program through your BBA account at least two hours before the start time of the program to receive the Zoom webinar link. 

This event gives law students and new lawyers a unique opportunity to meet with several Boston-area bankruptcy attorneys in just one evening. Those who attend this event will have the chance to meet all of our guest attorneys in small groups to learn about lawyering in a pandemic, career paths, and legal opportunities available in Boston. An introduction will be provided by The Honorable Janet E. Bostwick, U.S. Bankruptcy Court for the District of Massachusetts.

This is a virtual event that will be held via Zoom.

BBA Webinars & Virtual Events are supported by the Joan B. DiCola Fund. To learn more or support this fund, click here.

Sponsoring Section/Committee(s):

Speakers:

Contact:

Douglas Newton
dnewton@bostonbar.org

REGISTER HERE!

Chapter 7 Bankruptcy Basics Training Webinar – July 23rd at 1:00 p.m.

Where: BBA Webinar – click HERE to register.

When: July 23, 2020, from 1:00 p.m. to 5:00 p.m.

Description: During these unprecedented times, your skills as an attorney are needed more than ever. Although COVID-19 has wreaked havoc on everyone’s lives, those who live below the poverty level have been hit the hardest, particularly those who have suffered a lose of income and increased debt.  It is anticipated by experts that the number of bankruptcy filings will substantially increase in the wake of the pandemic, so your volunteerism is especially crucial now.

To help meet this need, the BBA and Volunteer Lawyers Project have collaborated to offer a Chapter 7 Bankruptcy Basics Training for volunteer attorneys.  This training will provide you with the building blocks of Chapter 7 bankruptcy laws and procedures, and allow you to deepen your skills for your private practice and pro bono cases.  Please join us and become part of the response effort to help lessen the financial impact of the pandemic on our most vulnerable community members.

Speakers: Natasha T. Lewis (VLP) and Kate E. Nicholson

For more information, you may contact Douglas Newton at newton@bostonbar.org

New BBA Webinar – July 16th at 3 pm – Help! I Need Somebody: Emergency Planning For Lawyers In a Post-Covid-19 World

Webinar Topic: Emergency Planning For Lawyers in a Post-Covid-19 World

Date: July 16, 2020

Time: 3:00 p.m. – 5:00 p.m.

Description: Lawyers cannot afford to ignore the risk that they become unable to practice.  In the wake of the COVID-19 pandemic, the importance of having an emergency plan in place has never been more apparent.  In this program, bankruptcy (and other) lawyers will gain indispensable insights into the ethical and practical issues that should be addressed in an emergency plan that protects clients and the lawyer’s business when disaster strikes.

Speakers: Jacob T. Simon, Jeffrey D. Woolf, and Francis Morrissey

 Registration: To register and obtain more information about this timely webinar, click HERE

REMINDER: 2020 Bankruptcy Bench Meets Bar Webinar, Wednesday, May 20, at 3 p.m.

Where: Online via Zoom

When: Wednesday, May 20, 2020, 3:00 p.m. to 4:15 p.m.

This webinar is an opportunity for bankruptcy professionals to hear from Massachusetts Bankruptcy Judges about the Bankruptcy Court’s operations since the COVID-19 pandemic and how practitioners are adapting.  The program will include the following topics:

     -State of the District update from Chief Judge Christopher J. Panos;

     -New standing orders and other procedural changes;

     -Current practice for status conferences, non-evidentiary hearings, and evidentiary hearings, and tips for telephonic hearings;

     -How the Court is preparing to handle the back log of evidentiary hearings and trials; and

     -What practitioners should expect when the Court reopens for live hearings (and factors being considered with respect to timing).

Other agenda items include answering questions and/or brief discussion of comments submitted by practitioners in advance about challenges with the new remote-only operation of the Bankruptcy Court.  All questions and comments can be emailed to Macken Toussaint, Bankruptcy Section Co-Chair, at mtoussaint@riemerlaw.com

Speakers:

     -Hon. Christopher J. Panos, U.S. Bankruptcy Court

     -Hon. Frank J. Bailey, U.S. Bankruptcy Court

     -Hon. Janet E. Bostwick, U.S. Bankruptcy Court

This program is being presented live via Zoom.  Please register for this program through your BBA account to receive the Zoom webinar link.  In order to receive the Zoom webinar link, you must register at least two hours before the start time of the program.

Further information for the program may be found HERE

THIS TUESDAY, November 12th from 12 – 1 PM, Join Us at the BBA for a Homestead Overview in Bankruptcy and Trusts and Estates

This program will focus on the Massachusetts Homestead Act and how it protects or does not protect property in the event of a bankruptcy. The speakers will also review how T&E attorneys make certain transfers with respect to a primary residence and how it may be impacted by a future bankruptcy. To register click HERE.

When: Tuesday, November 12, 2019, from 12:00 to 1:00 p.m.

Where: Boston Bar Association, 16 Beacon Street, Boston, MA

Speakers:

-Adam J. Ruttenberg, Arent Fox LLP

-Elizabeth A. Caruso, Baker, Braverman & Barbadoro, P.C.

Registration Categories:

-BBA Member – Free. Included as part of your membership.

-Non-Member – $100.00

Sponsoring Section/Committee(s):

-Trusts & Estates Section

-Estate Planning Committee

-Bankruptcy Law Section

Contact: Jenna Kim, jkim@bostonbar.org

NOTICE OF VACANCY: TERM LAW CLERK TO THE HON. JANET E. BOSTWICK

Position Title: Law Clerk to U.S. Bankruptcy Judge

Position Type: Full-Time Term Limited, Excepted Service

Application Opening Date: October 21, 2019

Application Closing Date: Preference for those received by November 12, 2019

Location: Boston, Massachusetts

Term of Employment: Immediately to August 31, 2020 (with potential to extend)

Starting Annual Salary Range: JSP 11/1 – 13/1, ($69,016 – $127,874 depending upon qualifications, experience and bar membership status)

General Job Description: Duties include conducting legal research and analysis, preparing memoranda and draft orders and opinions, working collaboratively with members of Chambers and the Clerk’s Office on matters affecting case administration, and performing other duties as may be assigned. A portion of the law clerk’s time will be spent observing courtroom proceedings and performing certain administrative functions.

Minimum Qualifications: At the time of appointment, the applicant must be a U.S. Citizen or be authorized to work in the United States. Applicant must be a law school graduate with academic standing in the upper third of the class or have other demonstrated proof of superior research and writing skills and legal acumen. Additionally, the applicant must be proficient in computer-assisted research and Microsoft Word. It is preferred that applicants have taken bankruptcy law in law school or have experience in the bankruptcy field or comparable practice areas. Familiarity with case management/electronic case filing (CM/ECF) is also preferred. Applicants must be able to quickly process and resolve complex issues and have excellent verbal, written, and interpersonal skills. Maturity, judgment, and discretion are required. Employees are hired provisionally pending the results of a completed background investigation.

How to Apply: Applications must include a cover letter, current resume and at least one writing sample. Candidates may apply for this position through the Online System for Clerkship Application and Review (OSCAR) by clicking HERE , or alternatively, may submit applications by mail to: The Chambers of the Hon. Janet E. Bostwick, Attn: Leslie Su, Law Clerk, United States Bankruptcy Court, John W. McCormack Post Office and Court House, 5 Post Office Square, Suite 1150 Boston, MA 02109-3945.

The Court reserves the right to modify the conditions of this job announcement, to withdraw the job announcement, or to fill the position sooner than the closing date, if a closing date is shown, any of which actions may occur without any prior written notice.

Further Information for Applicants:

· Employees of the United States Bankruptcy Court serve on an “at will” basis and are required to adhere to a Code of Conduct, a copy of which is available upon request.

· Applicants who proceed further through the application process may be requested to provide additional information including references.

· The United States Bankruptcy Court is an Equal Opportunity Employer.

Get Ready for the 2019 Amendments to the Bankruptcy Code: Small Business, Veterans’ Rights, and Farm Relief, October 15th, from 12 to 1 pm.

Join us at the BBA on Tuesday, October 15th, from 12 pm to 1 pm, as we review Bankruptcy Code amendments and discuss their potential impact on filings now, in 2020, and beyond. The discussion will include provisions affecting small businesses, veterans, and family farmers in reorganizing their debts, as well as changes to the laws governing avoidance actions ushered in by the amendments.

To register for the event, click HERE.

BBA Member – Free. Included as part of your membership.

Non-Member – $100.00

Speakers: David Mawhinney, K&L Gates LLP, and Jessica Youngberg, Veterans Legal Services

For more information about the amendments affecting veterans, click: HERE for a helpful chart on the HAVEN Act and HERE for the final legislation’s text.

Bankruptcy Fall Kickoff Reception with Honored Guest, Judge Designate Janet E. Bostwick: October 2nd, at 5 PM at the BBA.

Please join the Bankruptcy Law Section at its Fall Kickoff Social Event for socializing, networking, and to welcome our Honored Guest, Judge Designate Janet E. Bostwick, as the newest member of the Massachusetts Bankruptcy Bench.

When: Wednesday, October 2, 2019, from 5:00 PM to 7:00 PM

Where: Boston Bar Association, 16 Beacon Street, Boston, MA

This program is free and open to all.  Don’t miss it!

You may register for the event by clicking HERE.

National Diversity Event — October 24, 2019 at 4 PM — Roadways to the Federal Bench: Who, me? A Bankruptcy Judge?

In an effort to improve diversity in the bankruptcy bench and bar and the federal bench in general, the Judicial Conference of the U.S. Committee on the Administration of the Bankruptcy System is hosting a simultaneous, nationwide event occurring live in 19 cities on October 24, 2019 at 4 PM Eastern. Boston is one of the cities hosting the event, where it will take place at the John J. Moakley Courthouse. The event is open to all lawyers and law students who register for the event.

The program will start with a livestreamed engaging panel discussion with Judges Bailey, Donald, and Gordon, moderated by retired Judge Davis. You will learn about bankruptcy practice (you get to go to court!), roadways to the bench, and why diversity is so important in the bankruptcy bench and bar. You will then participate in an hour of “roundtable” discussions, where judges sitting at your table will talk about their roadways and answer your questions. Every fifteen minutes, the judges will move to another table, so you will meet up to 8-10 judges in just one hour. We expect that Bankruptcy, Circuit Judges, District and Magistrate Judges will attend and participate in this event. There will be a reception immediately following the event.

Registration opens September 17, 2019, at noon Eastern. We have limited space, so availability is on a first-come, first registered basis. No charge, but you MUST register. DON’T MISS OUT! Once registration opens, you can sign up by visiting the event website HERE and clicking on the registration button when that becomes active. If space is available, you will receive an email confirming your registration within a few days. If you receive a confirmation email and are later unable to attend, please let us know immediately so that we can make space available to another lawyer or law student. In some instances, interested lawyers and law students may be placed on a wait list if space later becomes available. In the meantime, that website has more details about the event. Who, me? Yes, you! See you there.