When you file Chapter 7 bankruptcy nearly all of your property becomes part of a “bankruptcy estate” which is overseen by a bankruptcy trustee. Because of the bankruptcy automatic stay, creditors are not allowed to take collection action against your property while the bankruptcy court, your creditors, your trustee, and your attorney determine the disposition of your property. The consequence of these two mandates is that even though an auto lender repossesses your car before bankruptcy, it must return the car to you after you file bankruptcy (as long as title has not already passed to the lender).
The 2005 changes to the Bankruptcy Code carved out an exception for pawned property. Section 541 of the Bankruptcy Code specifically excludes pawned property from “property of the bankruptcy estate.” The pawned property must be (1) tangible; and (2) in the possession of the pawnbroker. Additionally, the debtor must have no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price. Consequently, a pawn broker does not have to return pawned property back to the debtor the way a creditor must return a repossessed car.
You must redeem pawned property within the time-constraints of applicable state law and Section 108(b) of the Bankruptcy Code. The Bankruptcy Code gives you the longer of 60 days or the state law period governing pawn shops to either pay off the debt that is owed to the pawn shop to release the collateral, or file a motion to redeem the property through the bankruptcy court. Redemption in bankruptcy means paying the fair market value of the item, so it is unlikely that this process will help to return pawned property. For most pawn transactions, the pawn shop loans the customer less than the fair market value of the item. The trustee also has the option to pay to redeem the property from the pawn shop, which bring the property into the bankruptcy estate. Consequently, this is not a good option to try to hide property from the bankruptcy trustee.
If you have pawned property and need bankruptcy relief, speak to an experienced attorney about your situation. There are several different options for dealing with pawned property, and your attorney can help you decide the best course of action for you and your finances.