How Are Pawn Shop Loans Treated in Chapter 13 Bankruptcy?

by Jonathan Ginsberg, Esq.

May 24, 2008

Business at pawn shops is booming.  With gas prices, food prices and pretty much every other type of spending in your budget going up, it is not surprising that middle income and upper income Americans are turning to pawn shops in order to raise money for food, utilities, housing and child rearing.

In Atlanta, I am starting to notice pawn shops in well manicured, middle class neighborhoods – a far cry from the stereotypical pawn shop in a seedy area of town.  A pawn store in the upscale Perimeter area of Atlanta bills itself as the “Atlanta’s Pawnshop of the Rich & Famous!”

Not surprisingly I am seeing some of the customers of these high end pawn shops in my office for bankruptcy consultations.  Often these clients have pledged valuable merchandise or heirloom jewelry and they don’t want to lose their property.  These clients are very interested to find out  how the bankruptcy law in Georgia treats pawn shop loans.  Click on the link to read more about this topic on my Atlanta bankruptcy web site.

I am going to discuss pawn shop loans and Chapter 7 in a different post.  In this post, I am going to discuss pawn shop loans and Chapter 13 filings in the Northern District of Georgia.  If you live in a different jurisdiction, you will want to speak to a knowledgeable lawyer in that jurisdiction.  In Georgia, at least, Georgia law applies and pawn shop regulations vary from state to state.

The Georgia law that applies to pawn shop transactions is set out in the Official Code of Georgia, Title 44, Section 12.  Specifically, Georgia law provides that “all pawn transactions shall be for 30 day periods but may be extended or continued for additional 30 day periods.”

Georgia law has additional rules for car title pawns – these rules give the borrower an additional 30 days to redeem his vehicle.

In most Georgia pawn transactions, the borrower can renew the transaction for additional 30 day periods by paying the interest and handling charges.  If the transaction is not renewed and it goes into default, title then transfers to the pawn store.  As noted above, borrowers who have pawned a car title have a 30 day grace period before title transfers.

Once title transfers, the borrower no longer owns the property.  Therefore, if you are considering bankruptcy, you are much better off filing before the pawn transaction goes into default.  If you file when the pawn loan is current, the pledged property will be part of your bankruptcy estate.  If you file after title has transferred, the pledged items will not be part of your bankruptcy estate.

In Northern District of Georgia Chapter 13 cases, pawn loans are treated as secured loans.  The automatic stay that goes into effect when you file for bankruptcy protects tolls the title transfer provision of the pawn contract.  In practice, this means that your Chapter 13 plan needs to provide for payment to the pawn shop creditor as a secured creditor with interest.  You will not get your pledged property back right away, however.  At a minimum, you will have to wait until the pawn broker has been paid in full and you may not get your property back until your case is paid out in full.

If your loan is in default and title has passed, there are some arguments that might bring the pledged property back into your estate, but your options are limited.

Either way, you are likely to face stiff resistance from the pawn broker lender who will argue that your heirloom jewelry is not “necessary” for your financial rehabilitation and the Chapter 13 trustee may argue that if you are going to fund a claim for a non-essential like jewelry or sporting equipment, then you need to pay all of your creditors at 100%.

As you can see, pawn shop loans and bankruptcy do not go well together.  If you have a pawn shop loan, make sure to reveal this to your lawyer and remember that you are better off filing your bankruptcy before your loan goes into default.

by , Atlanta bankruptcy lawyer

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including www.atlanta-bankruptcy-attorney.com and an Atlanta bankruptcy blog, www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.

Last modified: May 22, 2013