Pawned property in Michigan bankruptcy
Pawned property in Michigan bankruptcy may still be part of your "bankruptcy estate" depending on how long it has been since it was pawned. That is, in either a Chapter 7 or Chapter 13 bankruptcy, nearly everything you own becomes part of the "bankruptcy estate," subject to the oversight of the bankruptcy Trustee. All of your debts, at least initially, are subject to the Automatic Stay that goes into effect against all of your debts immediately upon filing the bankruptcy petition. For much of a debtor's personal property, these factors do not permit such credit actions as repossession, foreclosure, or other collection attempts. For pawned property in Michigan bankruptcy, however, the 2005 BAPCA amendments to the Bankruptcy Code, in Section 541(b)(8), specificially excluded from the bankruptcy estate that is created by the filing of a petition:
- "Tangible" personal property in the possession of the pawnbroker
- When the debtor has no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price ...
- And neither the debtor nor the trustee have exercised any right to redeem provided under the contract or State law, in a "timely" manner (as provided under State law and Section 108(b) of the Code)
What this means is that property you've pawned—given to a pawnbroker in exchange for a certain amount of cash with no obligation to return the money and reclaim the property—does not become part of the bankrupty estate unless you or the Trustee has, within the time-constraints of applicable state law and Section 108(b) of the Bankruptcy Code, acted to redeem the property through the bankruptcy process. In that case, the pawnbroker is not required to return the property to the debtor when the bankruptcy petition is filed the way, say, an automobile dealer must return a repossessed vehicle when a bankruptcy petition is filed. The pawnbroker may not be free and clear to sell the property, on the other hand. The amended Code leaves that unclear. If the selling of the property can be characterized as an act to collect on a debt that existed prior to the filing of the petition, it is subject to the Automatic Stay against such debts that goes into effect when the petition is filed. Further, the pawned property may be required to be turned over to the Trustee if the property is property that the Trustee may "use, sell, or lease" or that the debtor may exempt. Also, there is nothing stopping a debtor for providing for the disposition of the property and its associated debt in a Chapter 13 payment plan.
State law and pawned property in Michigan bankruptcy
State law, then, governs several aspects of this situation. In Michigan, the title to the pawned property vests with the pawnbroker after 3 months. The pawnbroker may not sell the property until that 3 months has passed. Therefore, the debtor and Trustee's right to redeem the property (recovering it for a given lump-sum of cash) is "timely" within 90 or so days of the pawning of the property. Therefore, a debtor considering bankruptcy, especially Chapter 7, who has pawned property that he or she wishes to recover, should keep this time-frame in mind. After the 3 month deadline has passed, under Michigan law, the title of the pawned property vests with the pawnbroker, allowing him or her full right to re-sell or otherwise use the property, and it may not be recovered by the debtor. If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact us at (866) 674-2317 or follow the link below to schedule a free, initial consultation. Schedule a Free Consultation