Seventh Circuit Holds Chicago’s Impounding Practices Violate Bankruptcy Automatic Stay

Published July 18, 2019

The Seventh Circuit Court of Appeals recently issued a decision with regard to the City of Chicago’s practice of holding a bankrupt debtor’s motor vehicle until the outstanding parking tickets are paid. The consolidated appeal involved several debtors, and in each case, prior to the debtors filing for bankruptcy, the City impounded their vehicles for failure to pay multiple traffic fines. After the debtors filed their Chapter 13 bankruptcies, the City refused to return the vehicles, and would only return the vehicles when the outstanding fines were paid in full. The bankruptcy court held that the City violated the Bankruptcy Code’s automatic stay by exercising control over property of the bankruptcy estate and that none of the exceptions applied. The bankruptcy court ordered the City to return the debtors’ vehicles and imposed sanctions on the City. The City appealed the decision of the bankruptcy court.  The Seventh Circuit Court of Appeals affirmed the decision of the bankruptcy court and held that a creditor must comply with the automatic stay and return a debtor’s vehicle upon his/her filing of a bankruptcy petition.