by Vehicles subject to title pawn are property of the bankruptcy estate where the debtors filed their bankruptcy petitions prior to expiration of the redemption period. Title Max v. Northington, No. 16-172 (M.D. Ga. Oct 27, 2016).
In this consolidated appeal, the chapter 13 debtors, Jonathan Northington and Gustavius Wilber, pawned their vehicles with Title Max. Under Georgia law, the debtors had the right to redeem the vehicles within thirty days of maturation of the pawn transaction by paying the remaining principal, plus interest and pawnshop fees. Both debtors filed for bankruptcy before the redemption period expired and Title Max filed proofs of claims as a secured creditor.
Upon expiration of the redemption period, Title Max filed motions in both cases seeking relief from stay. It argued that because the debtors never redeemed the vehicles according to state law, they did not own them and the vehicles were not part of the bankruptcy estate. The bankruptcy court disagreed and confirmed the debtors’ plans, which included Title Max as a fully secured creditor, without objection from Title Max.
The district court affirmed. It found that when the debtors filed their bankruptcy petitions they still had the right of redemption and, therefore, they had an ownership interest in the vehicles. Once part of the bankruptcy estate, section 1322(b) authorizes modification of the creditor’s rights to alter the right of redemption and permit payment of the debt through the plan.
The court found that the holding in Commercial Federal Mortgage Corp. v. Smith (In re Smith), 85 F.3d 1555 (11th Cir. 1996), was inapplicable. In Smith the circuit court held that the right of redemption cannot be modified in chapter 13 where the collateral was sold prior to the bankruptcy petition. There, the debtor’s ownership interest in the property was extinguished by the pre-petition foreclosure sale. Here, on the other hand, the debtors retained their interest in the titles to their vehicles at the time of their petitions.
Thus, the bankruptcy court properly found that the vehicles were estate property and could be treated under the confirmed plan.