TICKET TO DEBT: CITY OF CHICAGO V. FULTON AND THE TWO-TRACK CONSUMER BANKRUPTCY SYSTEM

In 2021, the Supreme Court decided City of Chicago v. Fulton, a landmark bankruptcy case that addressed 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 automatic stay, as its name suggests, is a breathing spell that prevents creditors from taking certain collection actions against the debtor after a bankruptcy petition has been filed. The Court answered in the negative, significantly weakening the automatic stay’s protective power in cases involving creditor actions commenced pre-petition and maintained post-petition. This Note examines the aftermath of the Fulton decision. It considers Fulton’s impact on debtors, creditors, and bankruptcy courts. Specifically, this Note argues that Fulton sheds light on the shortcomings of the current bankruptcy system, and it discusses the ways in which debtors of color are disproportionally disadvantaged. In closing, this Note proposes that the Bankruptcy Code’s discharge provisions should be amended to provide debtors with a better chance at relief.

The full text of this Note can be found by clicking the PDF link to the left.

* J.D. Candidate 2024, Columbia Law School. For providing excellent guidance, thanks to Professor Edward R. Morrison and Eileen Li. For their careful reads, thanks to Professor Rafael I. Pardo, Celeste Kearney, Andrew Straky, Emily Erickson, Christelle Lobo, Kristin Bergeson McCalpin, Margaret Hassel, and the Columbia Law Review staff. This Note is dedicated to my grandma and grandpa, who lived with generosity and persistence, whose hearts made this world a better place, and whom I miss every day. All errors are my own.

Introduction

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, 1 See Rafael I. Pardo, Racialized Bankruptcy Federalism, 2021 Mich. St. L. Rev. 1299, 1341 n.218 (“The court opinions related to Fulton’s bankruptcy case do not discuss her race. The profile picture from her Facebook page is one of a woman of color.”); see also Brief for Respondents at 7, City of Chicago v. Fulton, 141 S. Ct. 585 (2021) (No. 19-357), 2020 WL 1478598 [hereinafter Brief for Respondents] (“Robbin Fulton is the single mother of a pre-school-aged daughter; at the time of her bankruptcy filing, she worked at a Chicago area hospital.”). 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. 2 Brief for Respondents, supra note 1, at 7. Unable to pay, she subsequently filed for Chapter 13 bankruptcy. 3 Id.

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. 4 141 S. Ct. 585, 589 (2021). 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. 5 Id. at 592.

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.” 6 Bankruptcy Courts, USAGov, https://www.usa.gov/federal-agencies/bankruptcy-courts [https://perma.cc/C9P2-ZWKJ] (last visited Aug. 23, 2023).

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. 7 See infra Part II. 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.