On Christmas Eve 2017, Robbin Fulton’s car was towed. She did not know that she was driving on a suspended license. Her license had apparently been suspended because she had failed to pay fees for a number of parking tickets. She would later discover that it actually was her ex-husband who had incurred the tickets, but it did not matter because the tickets were tagged to the car that the two of them once shared. Fulton, a woman of color and single mother to a preschooler,
tried to get her car back but was told that her car would not be returned to her until she paid a fee of $4,000.
Unable to pay, she subsequently filed for Chapter 13 bankruptcy.
Her case made its way to the Supreme Court. In 2021, the Court decided City of Chicago v. Fulton, a landmark bankruptcy case that addressed a long-standing circuit split on the issue of whether passive retention of estate property violates § 362(a)(3) of the U.S. Bankruptcy Code, commonly known as the “automatic stay” provision.
The Court held that because the automatic stay merely prohibits “any act . . . to exercise control over property” of the bankruptcy estate, passive retention—wherein the creditors are simply holding onto the estate property—falls outside the scope of the provision and is therefore permissible.
This Note considers the problems arising out of this holding: that bankruptcy courts are struggling to draw a line between passive and affirmative acts, that communities of color are disproportionately affected, and that people experiencing insolvency are further disempowered—thus contravening the bankruptcy system’s dominant purpose to “help people who can no longer pay their creditors get a fresh start.”
This Note argues that the suggestions put forth by commentators, the Court, and Justice Sonia Sotomayor in her concurrence are attractive for their simplicity but ultimately fall short.
The problem cuts deeper; Fulton exposed the consumer bankruptcy system’s structural vulnerabilities. This Note proposes that a more complete solution must address bankruptcy’s “two-track” structure. The two-track system requires individual debtors to choose between Chapter 7 and Chapter 13 bankruptcy; the two Chapters are governed by similar but separate eligibility, relief, and discharge provisions. This Note argues that the two Chapters’ discharge provisions should be brought into closer alignment, which would allow debtors who have not engaged in willful or malicious behavior to access the protections provided by either Chapter 7 or Chapter 13.
This Note proceeds in three Parts. Part I provides relevant context. It lays out the basic framework of the Bankruptcy Code’s key provisions and bankruptcy procedure rules. It then provides a history of Chicago’s vehicle impoundment program, which has become too common a trigger for bankruptcy. Part II discusses the Fulton decision and the Court’s legal reasoning. It also explains the main problems arising out of the holding, primarily that it is now more difficult for debtors to get relief. Part III proposes a statutory solution that would shrink the gap between Chapter 7 and Chapter 13 bankruptcy to mitigate Fulton’s impact on the automatic stay.