The pawn business is booming. But pawn shops aren’t just employing the working poor. Instead, middle and upper income borrowers are taking their valuables to pawn shops to generate the cash needed for mortgage payments, vehicle loans, school tuition and even essentials like food and clothing. Pawn industry trade magazines have taken notice of the trend and more and more pawn brokers are opening locations in top quality shopping centers. Specialty pawn stores now look a lot more like jewelry stores than merchandise filled pawn shops and they openly solicit wealthy customers. In Atlanta, there is a pawn store called “The Happy Hocker” that specializes in jewelry and watches advertises itself while the “pawn go shopping for the rich and famous.”
Bankruptcy lawyers may also be seeing these well heeled borrowers. While the 2005 changes to the nation’s bankruptcy laws generally require wealthy debtors to file Chapter 13, there is a steady upward climb in the number of bankruptcy filings by families who’ve household earnings of $100,000 or more. And in addition, several high income bankruptcy filers have pledged into pawn collectibles, jewelry, electronics, watches and family heirlooms in an endeavor to raise cash. Scared, embarrassed and unsure about exactly how pawn stores work, these pawn borrowers unnecessarily risk their property if they’re not alert to time deadlines and default provisions.
In most cases, the largest risk to a pawn borrower arises from the default provisions of the pawn loan. Generally, upon default, title to the pawned collateral transfers to the pawn broker. Therefore, generally speaking, if a borrower is thinking about filing for bankruptcy, he should file his case ahead of the pawn loan goes into default and/or before title actually passes.
Although bankruptcy laws are federal laws and applicable Atlanta title pawn shop laws will change from state to state. In general a bankruptcy court will appear to local laws to ascertain when a pawn loan is in default. Local laws may also set out the principles about exactly what a borrower needs to complete to be able to keep his pawn loan out of default – usually this mean tendering an interest payment.
In most states, a Chapter 13 filing while the pawn transaction continues to be current will preserve the debtor’s ownership in the property. The automatic stay static in bankruptcy will avoid the pawn broker from selling the property and the Chapter 13 plan can give the borrower a way to repay the pawn loan as a secured debt. The borrower might not get possession of his property right away, but at the very least he knows that the property is safe.
In comparison Chapter 13 might not be just as much help after title has passed. In this example, the pawned merchandise doesn’t become area of the debtor’s bankruptcy estate and which means loan is not included in the plan. There are a few arguments that a clever lawyer may use to create the pawned property back in the bankruptcy estate, but this technique is an uphill battle.
Generally, therefore, pawn borrowers should try to file their Chapter 13 cases before their pawn transactions enter default. At least the pawn borrower should seek legal counsel just before default to learn more about the applicable state law and the area bankruptcy procedures that handle pawn loans.
Jonathan Ginsberg has practiced consumer bankruptcy law in Atlanta, Georgia for over 20 years. Along with representing debtors in Chapter 7 and Chapter 13 bankruptcy cases, Jonathan serves as an ongoing education instructor, assisting other lawyers find out about new bankruptcy law developments and practice management skills.