Law Review Note: Reilly, Jack- The Timing of a Debtor's Petition for Bankruptcy can Determine if a Pending Title Pawn Contract becomes Property of a Debtor's Estate

Available at:   https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?article=1365&context=bankruptcy_research_library

Abstract:

Section 541 of title 11 of the United States Code (the "Bankruptcy Code") determines whether property comes into a debtor's bankruptcy estate falling under the protection of the automatic stay afforded by section 362 of the Bankruptcy Code. Bankruptcy Code section 541 defines property of the estate as "all legal or equitable interests of the debtor in property as of the commencement of the case[.]" What constitutes a debtor's "legal or equitable interest" in property is determined by state property law, making state law the determining factor in whether a debtor's interest in a specific property constitutes property of the estate.

The state law inquiry of whether property is property of the estate has led to divergent outcomes in factually similar or identical bankruptcy cases in different jurisdictions. In cases involving the debtor pawning an item of value and subsequently filing a bankruptcy petition, these differing outcomes are not always due to the differences in state pawn statutes. This memorandum examines how bankruptcy courts determine whether pledged property in a title pawn transaction enters a debtor's bankruptcy estate. Section I gives a brief overview of the transaction which is the title pawning of an item. Section II details three Bankruptcy Code sections that are relevant to the determination as to whether a title pawned item constitutes property of the estate. Section III analyses the timeline of a title pawn contract to demonstrate how the time of filing for bankruptcy impacts whether the pledged collateral is placed in the debtor's bankruptcy estate or is forfeited to the pawnbroker.

Commentary:

This note recognizes that because under California law,  a title lender is required to provide notice to the debtor before obtaining legal title to a vehicle,  with the filing of a bankruptcy,  the automatic stay prevents the title lender from sending that notice.  This is contrasted with Georgia,  where title to automatically passes upon the failure of the debtor to timely redeem the property.  But  the automatic stay of §362(a)  applies to "all entities",  which  includes  the debtor also.  And although  City of Chicago v. Fulton established that merely maintaining the status quo did not violate the automatic stay,  the failure to act is itself an act.

So isn't the debtor's  failure to redeem  itself a violation of the automatic stay and hence void, with the pledged collateral remaining an asset of the estate until the court grants relief to the debtor to not redeem?

With proper attribution,  please share this post.