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.
Title Max v. Northington (In re Northington), 876 F.3d 1302, 1308–15, 1314 n.9 (11th Cir. Dec. 11, 2017) (Wilson, Newsom, Moreno) (Distinguishing (poorly) United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 276, 130 S. Ct. 1367, 1380, 176 L. Ed. 2d 158 (Mar. 23, 2010), pawn broker is not bound by confirmed plan that pays title pawn in full with interest as a secured claim because pawn broker filed preconfirmation motion for stay relief; car subject to title pawn “dropped out” of Chapter 13 estate “automatically” when state law redemption period expired postpetition, nullifying the power to modify in § 1322(b)(2). Debtor filed Chapter 13 petition before state law grace period expired with respect to title pawn of car. Grace period under Georgia law expired and pawn broker moved for stay relief. Without objection from pawn broker, plan was confirmed that treated title pawn as secured claim for payment in full with interest. Bankruptcy court denied stay relief based on binding effect of confirmed plan. “TitleMax was not required to file an ‘Objection’
Schnitzel, Inc. v. Sorensen (In re Sorensen), 586 B.R. 327, 332–35 (B.A.P. 9th Cir. June 15, 2018) (Faris, Brand, Taylor) (Distinguishing Title Max v. Northington (In re Northington), 876 F.3d 1302 (11th Cir. Dec. 11, 2017) (Wilson, Newsom, Moreno), based on differences between California and Georgia law, pawned jewelry became property of Chapter 13 estate and could be redeemed through confirmed plan because postpetition notice of termination required by California law violated automatic stay and was void. Without valid termination notice, § 541(b)(8) did not remove pawned property from bankruptcy estate. “[W]hen Ms. Sorensen filed her bankruptcy petition, all of her interests in her jewelry at that time became part of her bankruptcy estate. . . . The bankruptcy court correctly held that her estate included her right to redeem her jewelry. . . . California Financial Code . . . provides that, if a pawned item is not redeemed before the end of the loan period, the pawnbroker must give notice of the loan termination and provide a ten-day redemption period . . . . [T]he right to redeem pawned property under California law does not expire until ten days after the pawnbroker gives proper notice to the pledgor. . . . R & J’s issuance of the ten-day notice was an act ‘to exercise control over property of the estate[,]’ . . . to ‘enforce a lien [that] ... secures a claim[,]’ and ‘to collect, assess, or recover a claim against the debtor[.]’ . . . It thus violated § 362(a). . . . Accordingly, the ten-day redemption period never began to run . . . , Ms. Sorensen’s redemption right was never extinguished, R & J never took title to the jewelry . . . , and § 541(b)(8) did not remove the jewelry from the estate. . . . [I]n Northington, the Eleventh Circuit held that, under state law automatically vesting title in the pawnbroker at the expiration of the redemption period, the pawned property ‘dropped out’ of the estate pursuant to § 541(b)(8). . . . We agree with the Northington court’s analysis, . . . but the result here is different because Georgia’s pawnshop law differs from California’s. In Georgia, following a statutory redemption period, the interest in the pawned property is automatically vested in the pawnbroker; the pawnbroker does not need to take any action. . . . In contrast, California Financial Code . . . required R & J to send notice to Ms. Sorensen before it obtained legal title to the jewelry. That notice . . . was void because it violated the automatic stay.”).
Title Max v. Northington, 559 B.R. 542, 545
First Am. Title Lending of Ga., LLC (In re Holt), No. 16-12150-WHD, 2017 WL 892333, at *1
In re York, No. 16-01964-FPC13, 2016 WL 6157432, at *2
In re Paul, 534 B.R. 430, 433-34 (Bankr. M.D. Ga. Feb. 17, 2015) (Carter) (Applying § 541(b)(8), debtor not entitled to turnover of car and cannot modify rights of title pawn when pawn contract matured before petition, car was repossessed before petition, Chapter 13 was filed during redemption period as extended by § 108(b) but debtor is unable to redeem with a lump sum during the redemption period. "[W]here collateral securing a creditor's claim is not part of the estate, § 1322 does not entitle a debtor to retain possession of the collateral and treat the creditor's claim as secured under the plan. . . . [B]ecause the Debtor has conceded her inability to redeem the Vehicle before the expiration of the statutory redemption period . . . , there is no reason to distinguish this case from the case law establishing that a Chapter 13 plan cannot be used to revive a debtor's right to redeem pawned property once the statutory redemption period has expired. . . . The Court finds additional support for its ruling in § 541(b)(8). This section provides that a vehicle pawned pre-petition is not property of a debtor's estate if: (i) the vehicle is in the possession of the pawn lender, (ii) the debtor has no obligation to repay the advanced funds, redeem the vehicle, or repurchase the vehicle at a stipulated price, and (iii) neither the debtor nor trustee has exercised the debtor's state law right of redemption in a timely manner . . . . Congress added § 541(b)(8) to the Code as a part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 . . . . [E]ach element of § 541(b)(8) is satisfied. . . . While [South Georgia Title Pawn] was a secured creditor at the time of the hearing, it cannot remain so. Although the right of redemption, as extended under § 108, had not expired at the time of the hearing, the Debtor concedes she cannot timely exercise it. Because the Debtor's interests in the Vehicle are thus to be extinguished, § 541(b)(8) will act to exclude the Debtor's interest in the Vehicle from the estate. . . . [Section] 541(b)(8), in conjunction with above-mentioned established principles of bankruptcy law, prevents § 1322 from being read to allow the Debtor to keep the Vehicle over the life of the Debtor's Chapter 13 plan.").
In re Thompson, No. 13-11235, 2014 WL 1330110 (Bankr. S.D. Ga. Mar. 31, 2014) (Barrett) (Confirmed plan that provided for title-pawn creditor's claims foreclosed argument that pawned vehicles were not property of the estate when pawn agreements had not matured prior to petition date; however, cause for relief from stay included that no party filed proof of claim, creditor was not receiving distributions under plan and debtors had no equity in vehicles.).
In re Howard, 507 B.R. 394, 398-400 (Bankr. N.D. Ga. Mar. 14, 2014) (Sacca) (Confirmed plan cannot resurrect rights in pawned property that were forfeited prepetition under state law when debtor did not pay before maturity date. "'Pledged goods not redeemed within the grace period shall be automatically forfeited to the pawnbroker by operation of [law], and any ownership interest of the pledgor or seller shall automatically be extinguished as regards the pledged item [regardless of whether vehicle was repossessed].' . . . Under Georgia law, the rights of a pawnbroker in pawned property are different from the rights that the holder of a security interest generally has in encumbered property, largely because of the automatic entitlement to full ownership of pawned property that a pawnbroker has when the pledgor does not timely redeem the property. . . . Because the Debtor did not pay the outstanding principal, interest, or other charges due on the maturity dates of the contracts and because the Debtor did not redeem the vehicles prior to filing for bankruptcy protection, the vehicles are not included in 'property of the estate.' . . . [A] 'Chapter 13 plan may not provide for disposition of property which is not property of the estate as defined in 11 U.S.C. § 541' and the 'fact of plan confirmation cannot bind a property owner to a plan provision disposing of his property rights when such property is not within the Court's vested jurisdiction.' . . . [Section] 1322(b)(2) . . . cannot be used to restructure the claims of a pawnbroker after the expiration of the redemption period. . . . For the very same reasons that a former mortgage-holder is not bound to the terms of a confirmed Chapter 13 plan providing for the cure of a lawfully foreclosed mortgage and a former lessor is not bound to the terms of a confirmed plan assuming and curing a terminated lease, the Debtor's Chapter 13 plan cannot bring property into her bankruptcy estate that was not her property as of the petition date. Even though the Debtor continued to possess the vehicles on the petition date, she no longer held legal title to them. Her equity of redemption had expired, thus she had no rights left in the property and she therefore no longer has any right to cure her default.").
Moore v. Complete Cash Holdings, LLC (In re Moore), 448 B.R. 93 (Bankr. N.D. Ga. Mar. 31, 2011) (Bonapfel) (Applying Georgia law, when debtors failed to timely redeem two pawned vehicles, the cars were owned by pawnbroker; pawnbroker had no notice of bankruptcy filing for 18 months into case, and postpetition repossession did not violate stay. Because time for redemption expired, vehicles were not property of bankruptcy estate but automatically became property of pawnbroker. Stay was annulled to validate repossession. Court did not discuss new exclusion from estate for pawned property in § 541(b)(8).).
In re Jones, No. 10 B 04352, 2011 WL 739780 (Bankr. N.D. Ill. Feb. 24, 2011) (Hollis) (Pawn creditor was bound by confirmed plan that provided payment for pawned jewelry; if creditor did not comply with confirmed plan, it would be required to pay $5,000 in actual and punitive damages, plus attorney fees.).
In re Jones, No. 10 B 04352, 2011 WL 748427 (Bankr. N.D. Ill. Feb. 24, 2011) (Hollis) (Pawnbroker's claim that pawned jewelry never became property of estate under § 541(b)(8) was precluded by confirmation of plan that provided for full payment of debt as secured claim. Res judicata effect of confirmation order prevented postconfirmation modification, stay relief or relief from confirmation order.).
In re Ballard, No. 10-71415, 2010 WL 4501891 (Bankr. M.D. Ga. Nov. 2, 2010) (Laney) (Pawnbrokers are required to strictly comply with Georgia Pawnbroker Act; contract that did not provide required 30-day grace period for pawn of motor vehicles was security interest, not pawn. Refusal to turn over vehicle was willful stay violation.).