Vehicle in Pawn Transaction Still Part of Bankruptcy Estate

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By Diane Davis

Nov. 3 — A Chapter 13 debtor who pawned the title of his vehicle in exchange for a cash advance may modify the rights of Title Max, which holds a secured claim, a district court in Georgia held Oct. 27 ( Title Max v. Northington , 2016 BL 357859, M.D. Ga., No. 4:16-CV-172 (CDL), 10/27/16 ).

Chief Judge Clay D. Land of the U.S. District Court for the Middle District of Georgia concluded that when the debtor filed his Chapter 13 petition, his vehicle was part of the bankruptcy estate.

Title Max had the right to be repaid under the title pawn agreement or to obtain full title of the vehicle if the required payments weren’t made, the court said. Title Max was a creditor with a claim against the debtor, the court said.

The outcome could be different in other jurisdictions, depending on the laws governing pawnbrokers so debtors should be aware of this.

Debtor Jonathan Northington filed his Chapter 13 petition before the grace period to redeem his 2006 Toyota Avalon expired. Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property, but to do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.

Under Georgia law, the debtor has a 30-day grace period after maturity to redeem his car. The debtor did not do so. However, he was still in possession of the vehicle.

Title Max argued that the vehicle was not part of the debtor’s bankruptcy estate because the grace period had expired before the debtor’s Chapter 13 plan was confirmed.

The bankruptcy court rejected this argument, concluding that the vehicle was property of the bankruptcy estate. As a result, Title Max couldn’t get relief from the automatic stay.

The district court agreed with the bankruptcy court’s conclusion.

The debtor filed his Chapter 13 petition before the grace period expired, which means that neither the debtor’s interest in his vehicle was forfeited or extinguished before his petition date. The debtor’s vehicle belonged to the bankruptcy estate because the debtor still had an ownership interest, the court said.

Under Bankruptcy Code Section 1322(b)(2), a Chapter 13 plan may modify the rights of holders of secured claims. The secured claim of Title Max can be modified in the Chapter 13 plan, requiring the debtor to pay nearly the amount claimed by Title Max in its proof of claim, the court said. Similarly, Title Max is bound by the terms of the debtor’s confirmed Chapter 13 plan, the court said.

Jenny Martin Stansfield, Macon, Ga., Stuart Walker, Martin Snow LLP, Macon, Ga., represented appellant Title Max.

Brace W. Luquire, Columbus, Ga., represented debtor/appellee Jonathan Northington.

To contact the reporter on this story: Diane Davis in Washington, D.C. at

To contact the editor responsible for this story: Jay Horowitz at

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