How Are The Rights Of A Pledgor To Redeem A Pledged Item
Different In Bankruptcy Than They Normally Are?
The most important additional benefit a bankrupt obtains concerning pawned items is the potential extension of the State redemption period. Section 108(b) of the Bankruptcy Code “extends” the State redemption period on the pawned item for 60 days following the bankruptcy filing date.
If upon receiving the bankruptcy notice the pawnbroker discovers that the State redemption period lapses after the bankruptcy petition date, but, less than 60 days from the bankruptcy petition date, the redemption period is extended pursuant to bankruptcy law until 60 days after the bankruptcy petition is filed. If the debtor fails to redeem the item within 60 days of the filing period, the State forfeiture laws remain in effect and the item is forfeited to the pawnbroker. However, where the State redemption period expires more than 60 days after the bankruptcy petition was filed, then, the longer State redemption period is utilized.
Simply stated, the bankrupt gets the longer of the two possible times, either the 60 day post-bankruptcy filing period or the State redemption period. Thus, in bankruptcy, where the State default date is over 60 days from the date of filing, then, State law remains operative. That is, State law has granted the debtor in bankruptcy greater rights than Federal law.
Conversely, if State law provides for a default prior to 60 days after the filing of the bankruptcy, then, the Federal 60 day redemption period applies. Again, the debtor in bankruptcy is afforded the greater right (Federal 60 day extension) of redemption.
The Court in In re Martin summarized the manner in which the Bankruptcy Code and State law work in tandem by stating:
A debtor has until the later of 60 days from the petition filing date or the end of the period under the contract or State law to redeem the pawned property under state law, or the property is not property of the estate.
In In re: Bolton, the Bankruptcy Court for the Eastern District of Mississippi also examined the interplay of State and Federal redemption periods. There, the pledgor had not defaulted on the pawn transaction at the time of the filing of the bankruptcy. Mississippi law granted a debtor three-business days after the repossession to redeem the pledged vehicle. The Court stated that:
[A]lthough the statute grants absolute ownership to the title pledge lender upon the pledgor’s failure to redeem within 30 days after maturity, it also grants the pledgor a right to redeem the property within three-business days of repossession.
When the bankruptcy was filed, the debtor had a right to redeem the property, but, the obligation to the pawnbroker could not be made a part of the payment plan in bankruptcy. The unexpired right of redemption under Section 108(b) applied. Upon the failure of the debtor to exercise the right of redemption, a default would occur and the pawnbroker would obtain title to the property.