Carl B. Davis, Chapter 13 Trustee v. Tyson Prepared Foods, Inc.

By operation of law, when a debtor files a bankruptcy petition, a bankruptcy “estate” is created consisting of all of the debtor’s property “wherever located and by whomever held.” 11 U.S.C. §541. In addition, the Bankruptcy Code provides that the filing of a petition “operates as a stay, applicable to all entities, of . . . (3) any act to obtain possession of property of the estate . . . or to exercise control over property of the estate; (4) any act to create, perfect, or enforce any lien against property of the estate; (5) any act to create, perfect, or enforce against property of the debtor any lien . . .; [and] (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case . . . .” 11 U.S.C. §362(a). Five Courts of Appeals have held that these prohibitions include passively holding or obtaining an interest in property of the debtor or the estate. Thus, a creditor’s passive retention of seized property or the creditor’s passive acquisition of a lien violates the automatic stay. Two Courts of Appeals, including the court below, have held that these prohibitions do not encompass passively holding or obtaining an interest in property, but apply only to affirmative conduct. Thus the passive retention of seized property or the passive acquisition of a lien do not violate the stay. The question presented is: Should the Court grant certiorari to resolve an entrenched and acknowledged conflict among the courts of appeals over whether section 362(a) applies to a creditor’s passively holding or obtaining an interest in property of the debtor or the estate?