Generally speaking, property that has been pawned is not property of the bankruptcy estate, and therefore cannot be claimed by the trustee to sell for the benefit of creditors.
Section 541(b)(8)(A) of the Bankruptcy Code states:
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 the tangible personal property is in the possession of the pledgee or transferee.
This provision requires the property to be in the possession of a third party. Consequently, this section will not apply, for example, where someone has pawned his car, the pawn shop has the title, but the debtor has kept the car.
Pawn transaction may also be avoided in certain circumstances. If that happens, then the pawned property will become property of the bankruptcy estate. At that point the bankruptcy trustee may be able to sell the property and distribute it to your creditors.
If you have any questions about what will happen to property that you have pawned when you file bankruptcy, we hope you’ll come in for a free consultation with an experienced Colorado attorney. You can schedule an appointment by calling 303.331.3403 or using our online scheduling system.