Affirming the district court and Bankruptcy Judge William R. Sawyer of Montgomery, Ala., the Eleventh Circuit narrowed the circuit’s own precedent that seemed to make pawnbrokers immune from bankruptcy.
Specifically, the Eleventh Circuit held in an unpublished opinion on August 30 that a chapter 13 plan can stretch out a pawn loan if there was no default before filing.
The per curiam opinion put limits on the holding in In re Northington, 876 F.3d 1302 (11th Cir. 2017), where the debtor had pawned her car. The debtor had defaulted before bankruptcy and was in the so-called grace period when she filed a chapter 13 petition. The debtor did not redeem the car within the 30-day redemption period under state law, as extended for 60 days by Section 108(b).
The Eleventh Circuit held in Northington that title had passed before bankruptcy, leaving the debtor unable to stretch out the loan in chapter 13.
Different Facts, Different Result
The facts in the Eleventh Circuit were different in critical detail.
The debtor had pawned her car for a $3,800 loan. Before the maturity date of the loan, the debtor filed a chapter 13 petition and proposed repaying the loan over the life of the plan. In other words, the default occurred after filing. In Northington, the default was before filing.
The pawnbroker objected to the plan, contending that the debtor lost title to the car when she failed to repay the loan by the maturity date, citing Northington. Bankruptcy Judge Sawyer overruled the objection and confirmed the plan.
District Judge W. Keith Watkins affirmed Judge Sawyer and laid out the elements of Alabama law on pawn loans. Because the debtor had title to the car on the filing date, and because the lender only had a lien and security interest in the car, the debtor was entitled to modify the car loan and pay off the loan over the life of the plan. Titlemax of Alabama Inc. v. Womack, 20-416, 2021 BL 131074 (M.D. Ala. April 9, 2021). To read ABI’s report, click here.
Ownership on Filing Was Pivotal
The Eleventh Circuit adopted the rationale of the two lower courts.
Under Alabama law, title only passes to the pawn lender when there is a default. The debtor has 30 days to redeem. After 30 days, the lender can sell the car.
Parroting state law, the appeals court said that the pawn lender’s “right to title and to possession of a pawned vehicle ripens only on expiration of the redemption period; until that day, the pawnbroker is a ‘lienholder’” only entitled to its monetary interest in the car. [Emphasis in original.]
Because there had been no default before the filing date, the circuit said that the debtor retained title to and possession of the car, distinguished from the “contingent interest that the debtor had in Northington.”
Since the debtor owned the car on the filing date, the circuit said that the debtor “enjoyed the benefit of the automatic stay.” In Northington, the debtor’s interests were not protected by the automatic stay, and the debtor’s rights were limited to stretching out the redemption period under Section 108(b), the circuit said.
Holding title on the filing date, the debtor had an interest in the car that “she could modify in her chapter 13 plan,” the circuit said. In other words, the filing “froze the interest of [the lender] as a lienholder with a secured interest in” the debtor’s vehicle.
The appeals court upheld the judgment confirming the debtor’s chapter 13 plan.
Affirming the district court and Bankruptcy Judge William R. Sawyer of Montgomery, Ala., the Eleventh Circuit narrowed the circuit’s own precedent that seemed to make pawnbrokers immune from bankruptcy.
Specifically, the Eleventh Circuit held in an unpublished opinion on August 30 that a chapter 13 plan can stretch out a pawn loan if there was no default before filing.
The per curiam opinion put limits on the holding in In re Northington, 876 F.3d 1302 (11th Cir. 2017), where the debtor had pawned her car. The debtor had defaulted before bankruptcy and was in the so-called grace period when she filed a chapter 13 petition. The debtor did not redeem the car within the 30-day redemption period under state law, as extended for 60 days by Section 108(b).
The Eleventh Circuit held in Northington that title had passed before bankruptcy, leaving the debtor unable to stretch out the loan in chapter 13.