If the time to redeem pawned property has not expired before bankruptcy, a chapter 13 debtor can retain the property by paying the pawnbroker in full over the life of the plan.
The expiration of the redemption period after bankruptcy does not give the pawnbroker title to the collateral, according to an Oct. 27 opinion by District Judge Clay D. Land of Columbus, Ga.
In the case on appeal to Judge Land, the debtor had pawned his car before bankruptcy and had given the title document to the pawnbroker. The pawn transaction matured before bankruptcy.
Under Georgia law, the debtor had a 30-day grace period after maturity to redeem his car. Before the grace period elapsed, the debtor filed a chapter 13 petition. The 60-day extension under Section 108(b) expired, but the debtor did not redeem his auto.
Instead, the debtor filed a chapter 13 plan proposing to pay the pawnbroker in full with interest over the five-year life of the plan. The pawnbroker did not object to the plan, which was confirmed.
The pawnbroker filed a motion to modify the automatic stay, contending that the car was not property of the estate because the time for redemption expired. The bankruptcy judge denied the lift-stay motion and was upheld by Judge Land.
Judge Land distinguished Eleventh Circuit authority holding that there is no default to cure if real property is foreclosed before bankruptcy. Instead, the debtor only has a right to redeem real property under state law because foreclosure extinguished the debtor’s title to the property before bankruptcy.
A pawn transaction is different, Judge Land said, because the pawnbroker, under state law, is a secured creditor at the time of bankruptcy. The debtor, he said, retained title to the property at the time he filed bankruptcy.
Consequently, the debtor could modify the pawnbroker’s rights as a secured creditor under Section 1322(b)(2).
The result may not be the same in other states if their laws governing pawnbrokers are different.