Supreme Court to Tackle Bankruptcy Repossessions

WASHINGTON (CN) — Taking up a case involving four men whose cars were impounded over scads of traffic tickets, the Supreme Court agreed Wednesday to determine whether filing for bankruptcy can undo a lawful repossession.

This case combines four bankruptcy cases filed in the U.S. Bankruptcy Court for the Northern District of Illinois, all stemming from Chicago’s practice of impounding cars based on their three or more unpaid parking penalties and fines. 

One of the debtors, Robbin Fulton, owed Chicago more than $11,000 in connection with 54 unpaid traffic violations. The city refused to return her car after she filed for bankruptcy. It did the same to Jason Howard, whose vehicle it impounded after he had racked up 66 unpaid violations costing more than $17,000.

George Peake owed more than $5,000 in connection to 22 violations, and Timothy Shannon’s car was impounded over his having driven on a suspended license, on top of several traffic violations.

While the bankruptcy court ordered the city to return the car in each cases, circuit courts around the country are divided on the issue.

The Second, Seventh, Eighth, Ninth and 11th Circuits have all ruled that creditors must return vehicles to their owners immediately after they’ve received notice of the bankruptcy filing. If the creditors refuse, these courts agree, they must pay sanctions for violating the Bankruptcy Code’s automatic stay provision.

The 10th and D.C. Circuits, by contrast, have held that a creditor can keep the car until a bankruptcy court determines whether the owner has a right to turnover.

“There is a square, entrenched, and openly acknowledged circuit split on the question presented,” Chicago told the Supreme Court in its September petition for certiorari.

“Consumer debtors whose cars have been impounded or repossessed by a creditor file thousands of bankruptcy cases every year. But the circuits are in open conflict about how to handle such cases.”

Craig Goldblatt with WilmerHale represents Chicago.

He did not return a request or comment, nor did Eugene Wedoff of Illinois, who represents the debtors.

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