§ 78.8     Pawn Transactions after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 78.8, at ¶ ____, LundinOnChapter13.com (last visited __________).

Pawnbrokers occasionally do battle with Chapter 13 debtors at confirmation with respect to whether the pawn is a secured claim that can be managed through the plan under § 1325(a)(5).1 BAPCPA did not change the rules of engagement for Chapter 13 debtors and pawnbrokers but some pawn transactions will never become confirmation fodder because of an amendment by BAPCPA to the definition of property of the estate in § 541. Under new § 541(b)(8), property of the estate in a Chapter 13 case does not include:

(8) subject to subchapter III of chapter 5, any interest of the debtor in property where the debtor pledged or sold tangible personal property (other than securities or written or printed evidences of indebtedness or title) as collateral for a loan or advance of money given by a person licensed under law to make such loans or advances, where—
(A) the tangible personal property is in the possession of the pledgee or transferee;
(B) the debtor has no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price; and
(C) 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).2

This new exclusion from property of the estate reaches pawn transactions when the pawned property is in possession of the pawnbroker, the debtor is not obligated to repay the loan and the right to redeem under contract or state law has expired. If the pawned property is no longer property of the bankruptcy estate, Chapter 13 debtors will have great difficulty winning the argument that § 1325(a)(5) (or any other Code section) is available to manage the transaction. Under § 506(a)(1), there would be no allowable secured claim because the estate would have no interest in property to which the pawnbroker’s interest could attach for purposes of § 506(a)(1). A well-advised pawnbroker would not file a proof of claim and there would be no allowable secured claim to be dealt with through a Chapter 13 plan.


To avoid this situation, the Chapter 13 debtor who desires to recover pawned property is best advised to file a Chapter 13 petition before expiration of the redemption period. The debtor is then positioned to argue that there remains a property interest that came into the Chapter 13 estate which might be managed under § 1325(a)(5).


1  See § 117.1 [ Pawn Transactions ] § 78.7  Pawn Transactions.


2  11 U.S.C. § 541(b)(8), also discussed in § 403.1 [ Property of the Chapter 13 Estate—New Ins and Outs ] § 46.2  Property of the Chapter 13 Estate—Changes by BAPCPA.