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Bankruptcy Cases in the Northern District of Georgia and Pawn Shop Transactions

  Atlanta area pawn shops have seen their lending operations increase as high fuel and food prices have made last year’s family budget no longer workable. I now see more and more middle class clients who have pledged jewelry, sporting equipment, tools and automobiles to pawn stores.  It is not unusual to see non-traditional Atlanta area pawn shops that have set up shop in traditional retail locations and who market themselves more as jewelry stores than as pawn shops.  I note, for example, that there is a high end pawn shop less than five miles from my office that bills itself as “Atlanta’s Pawn Shop for the Rich and Famous.”

  What happens if you have pledged jewelry, vehicles or other personal items to a pawn shop, and now you need to file for bankruptcy?  Are those items lost?  Does the automatic stay protection in bankruptcy override the 30 day default provision in Georgia pawn store contracts?

  The answer to this question depends on the nature and timing of your pawn transaction.

Georgia Pawn Transactions are for 30 Days

  The Georgia law that controls pawn transactions may be found at section 44-12-130 through 44-12-139 of the Official Code of Georgia.  Under Georgia law, pawn transactions “shall be for 30 day periods but may be extended for additional 30 day periods.”  The law also provides limits on the amount of interest that the pawn store can charge for the initial and renewal periods of time.

File Your Bankruptcy Case Before
Pawn Contract Goes Into Default

  My review of the case law suggests that in general you are better off filing your bankruptcy while your pawn transaction is not in default. If you have pawned personal property, you should read the pawn contract carefully to determine what your obligations are to keep your contract current.  If you default on your pawn contract, then title passes to the pawn store and your rights to redeem your property in bankruptcy become much more limited and complicated.

  Different rules apply if the pledged property is a motor vehicle - Georgia Code section 44-14-403(b)(1) and (2) give the borrower an extra thirty days to redeem his vehicle.  Here, too, however, you are better off filing before the contract goes into default.

  Non automobile pawn loans are different than finance company loans because the possession of the personal property remains with the pawn shop owner. 

Treatment of Pawn Transactions in
Chapter 7 and Chapter 13 Cases Filed in the
Northern District of Georgia

  In the Northern District of Georgia, the practice has been to treat pawn shop loans as secured claims in Chapter 13 cases, meaning that the pawn shop gets paid its full claim with interest, and the pawn shop will retain possession of the pledged item at least until the loan is paid in full.

  As noted above, if the pawn contract is in default at the time of the case filing, the pledged items will not be considered part of your bankruptcy estate in either Chapter 7 or Chapter 13 and you and your lawyer will need to prepare an argument as to why this property should be brought back into your bankruptcy estate.

  I could not find any on-point case law regarding pawn shop loans in Chapter 7, but in the few cases I have had over the years, the automatic stay does stop the pawn shop from selling the pledged item.  In most cases, pawn shop owners are not very happy about having to deal with bankruptcy cases, meaning that the Chapter 7 debtor needs to scramble to find the money to redeem the pledged item.  In Chapter 7, the pawn broker can file a Motion for Relief From Stay in order to proceed with his state law remedies.  In the alternative once the Chapter 7 case concludes, the bankruptcy law provides that in the absence of a (mutual) reaffirmation, the property is to be surrendered to the pawn creditor.

Back to Georgia Bankruptcy Law Exemptions

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