Bankruptcy Lawyer Bryan W. Stone answers the question: “Can I keep my car if I file bankruptcy?”
If you’re in the midst of tough financial times, it isn’t surprising that you might have to consider alternative ways of raising money. Though you may never have thought about pawning your property before, if you have bills that need to be paid it might be one of your only options. Once the item has been pawned you might not think much about it, but a recent bankruptcy case out of Georgia indicates that might not be the end of the story, especially if you want to try and get that property back.
The case in Georgia began when a man filed for Chapter 13 bankruptcy protection. Prior to filing he had signed over the title to his 2006 Toyota Avalon to Title Max in exchange for a cash advance loan. The arrangements involve handing over title to your vehicle in exchange for loan, usually at high interest rates. If you fail to repay the loan within a certain amount of time, Title Max takes ownership of the vehicle used as collateral for the loan.
In Georgia, a debtor has a 30-day period to redeem a vehicle that is pawned. The debtor, in this case, did not take action within that window; however, he remained in possession of the car. Title Max argued that because the debtor waited too long to redeem the car, the vehicle should not be seen as a part of the bankruptcy estate. According to Title Max, the grace period had expired before the Chapter 13 plan had been confirmed.
The bankruptcy court disagreed and held that a Chapter 13 debtor could modify the rights of the title company, saying that when the Chapter 13 petition was filed the vehicle was a part of the bankruptcy estate. The Court said that the vehicle belonged to the bankruptcy estate because the debtor still had an ownership interest in it when the Chapter 13 petition was filed. Thankfully for the debtor, the petition was filed before the grace period expired, even if the request to redeem had not yet occurred. This meant that the debtor’s interest in the vehicle had not been forfeited before the petition date.
The judge said that in this case, the secured claim of Title Max can be modified by the Chapter 13 plan. Though Title Max didn’t win the case, they retained the right to be repaid or to obtain full title to the vehicle if the payments are not made. The court made clear that Title Max must also be bound by the terms of the debtor’s confirmed Chapter 13 plan.
The case demonstrates that loans made with a pawnshop can be tricky during a Chapter 13 bankruptcy. The timing of the loan and of the bankruptcy filing will play a big role in determining what happens to the pawned property. If the redemption period has not yet expired, the property used for a pawn loan will become part of the bankruptcy estate. This is important because any property that is part of the bankruptcy estate is protected by the automatic stay. The automatic stay ensures that the pawnshop would not be able to gain final ownership over the property because they would be unable to enforce any liens.
If, however, the redemption period has expired at the time a bankruptcy petition is filed, then the property will not be seen as part of the bankruptcy estate. If the property isn’t part of the bankruptcy estate, then the automatic stay doesn’t apply and ownership of the property will transfer to the pawnshop rather than the debtor.
In a Chapter 7 bankruptcy, things are a bit simpler. You can easily discharge the debt owed to the pawnshop, but if you do then you will lose the property that was used as collateral for the loan. Only if the debt is satisfied will you be able to hold onto the property given to the pawnshop.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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