It’s Football Season Again: Georgia’s Setback on Titlebacks

 

In previous blog posts I’ve discussed decisions from the 11th Circuit Court of Appeals (covering Alabama, Georgia and Florida…all the best SEC teams) on the ability to deal with motor vehicle title pawns in bankruptcy.  You can view the prior posts here and here.  Last year, interpreting Alabama law, the 11th Circuit ruled that a vehicle owner who filed bankruptcy before the expiration of the title pawn redemption could use Chapter 13 bankruptcy to modify the pawnholder’s rights and pay the loan back over time. 

If you’re new to the concept, a title pawn allows you to obtain cash, in the form of a high-interest loan, by pawning your motor vehicle title.  If you do not repay the loan and interest by the end of the agreed time – usually a 30-day “redemption period” followed by a 30-day “grace period,” – ownership of the vehicle passes to the title pawn company.  For many years, bankruptcy was an option that consumers could use to hang onto their vehicles by repaying title pawns over a period of 3- to 5 years if they could not repay the title loan before the redemption period and grace period expired.  That all changed in 2017 when the 11th Circuit ruled that bankruptcy did not stop the passing of ownership if the pawn was not repaid within the time stated in the agreement. 

This year, a Bankruptcy Judge in the Southern District of Georgia confirmed that the 11th Circuit’s Northington decision would apply even where the vehicle’s owner filed bankruptcy 26 days before the title pawn’s redemption period expired.  You can read the decision, Titlemax of Georgia, Inc. v. Hamilton, here.  In the Hamilton case, the Bankruptcy Court held that the Alabama pawn statute was distinguishable from Georgia’s.  The fact that the title redemption period had not run made no difference under Georgia law, which provides for automatic transfer of ownership.  At that point, the motor vehicle is no longer property of a debtor’s bankruptcy estate.  Absent clear direction to the contrary in the Bankruptcy Code, a state’s law concerning property rights is respected.   

The Court in Hamilton stated in conclusion:

Notwithstanding the onerous costs that many desperate consumers incur in pursuing title pawn transactions, they remain lawful in Georgia.  Here, the Debtor has not alleged that TitleMax charged fees in excess of those permitted by the statute or that it failed to make all required disclosures.  The Court has no power to invalidate the Georgia statute.  Of course, the Court is not blind to the nature of pawn transactions.  They have short terms and typically feature triple-digit annual interest rates.  And, notwithstanding the “30-day” period of these contracts, many borrowers, like the Debtor in this case, renew their loans and extend the maturity date several times.  Pawnbrokers may have strong incentives to agree to these extensions.  Nonetheless, the Court finds that nothing in the Bankruptcy Code permits a Chapter 13 debtor to modify a title pawn contract under Georgia law by treating the pawnbroker as a secured creditor where the state-law redemption period . . . has expired and the pawnbroker has adequately asserted its rights[.]

(footnote omitted).  The Hamilton decision is not binding on other bankruptcy judges, who remain free to construe the 11th Circuit’s rulings in their own way.  However, the Hamilton case is extensive, and carefully researched and reasoned.  Arguing for a different outcome under Georgia law would fetch long odds and would likely require some very unusual facts. 

As with any successful football team, successful personal management requires a realistic and competent game plan.  Pawning a motor vehicle for a loan that must be repaid at 150% interest is the equivalent of “going for it” on 4th down with 30 yards to go.  There may be situations so desperate that a consumer feels he or she has no other choice, but every pawn transaction carries the strong possibility that ownership of the motor vehicle could be lost to the title lender.  If that motor vehicle is essential for transportation to work, school or medical appointments, pawning the title puts that means of transportation at risk.  The best advice concerning title pawns is to avoid them completely.  But if you believe you really have no other choice, be prepared for the possibility of losing the vehicle, or be sure you have a solid plan for getting your title back.  If you cannot comply with the terms of the title pawn, a bankruptcy option is not likely to be in the playbook. 

The 7thirteen is a blog written by Jeff Narmore, focusing on consumer bankruptcy issues.  Visit my website at narmorelawoffice.com for more information.  Narmore Law Office LLC is a debt relief agency and helps people file for relief under the United States Bankruptcy Code.