In re Jackson, Bankruptcy No. 91-3922-LN.

• Decision Date: 15 November 1991
• Docket Number: Bankruptcy No. 91-3922-LN.
• Citation: 133 BR 541
• Parties: In re Mark L. JACKSON and Virginia A. Jackson, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Oklahoma

133 B.R. 541 (1991)

In re Mark L. JACKSON and Virginia A. Jackson, Debtors.

Bankruptcy No. 91-3922-LN.

United States Bankruptcy Court, W.D. Oklahoma.

November 15, 1991.

Kenneth G. Mayfield, Oklahoma City, Okl., for debtors.

Jared D. Giddens, Bryan J. Wells, Self, Giddens & Lees, Inc., Oklahoma City, Okl., for creditor.

ORDER ON OBJECTION TO CONFIRMATION OF PLAN

PAUL B. LINDSEY, Bankruptcy Judge.

INTRODUCTION

On June 3, 1991, debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code.¹ Debtors are indebted to Cash America Investments, Inc. ("Cash America") in the amount of $540 based upon three pawn tickets given on April 1, 1991 for $295; on April 8, 1991, for $108; and on May 18, 1991, for $114. To secure the amounts owed to Cash America, debtors delivered possession of certain collateral to Cash America. The collateral was in Cash America's possession on the date debtors' petition was filed. Debtors' Chapter 13 plan would pay Cash America's claim in 24 monthly payments of $25.24, including interest at the rate of 10 percent per annum.

On July 16, 1991, Cash America filed an objection to debtors' plan. Cash America contends that debtors are preventing it from satisfying its claims through the sale of the collateral pursuant to the provisions of the Oklahoma Pawnshop Act.² Cash America also contends that the collateral pledged by debtors on April 1, 1991, is not property of the bankruptcy estate pursuant to §§ 541 and 1306 of the Code, and § 1509(D)(j) of the Act.³ Cash America further contends that debtors' plan is not confirmable pursuant to § 1325 of the Code for the following reasons: (1) the plan affects rights in property in which debtors have no interest; (2) the proposed monthly payments have a value as of the effective date of the plan less than the value of Cash America's interest in the collateral⁴; (3) pursuant to § 108(b) of the Code, debtors were required to redeem the collateral pledged on April 8 and May 18, 1991, by payment in full, not later than 60 days after the filing of the bankruptcy petition; (4) debtors' plan creates a "recourse" debt to the extent of the allowed claim, while State law prohibits Cash America from entering into recourse transactions with customers.

On September 9, 1991, a confirmation hearing was held on debtors' plan. The matter was taken under advisement and the parties were permitted to file supplemental briefs.

CONTENTIONS OF THE PARTIES

In a typical pawn transaction, a pawnbroker loans money to a customer, and takes possession of collateral pledged by the customer as security for the loan. The maturity of the transaction must be no more than one month after the date of the transaction.⁵ At any time prior to maturity, the customer may "redeem" the collateral by repaying the amount of the loan plus a pawn finance charge.⁶ If a customer fails to redeem the goods prior to maturity, the pawnbroker must continue to hold the goods for an additional 30 days, and if the goods are not redeemed within that period, the goods may be forfeited and become the property of the pawnbroker.⁷

Cash America contends that, on the petition date, debtors had no legal or equitable interest in the collateral pledged on April 1, 1991, since the pawn ticket had matured and the redemption period provided by State law had expired prior to that date. Cash America argues that the collateral was forfeited and became the property of Cash America pursuant to § 1511(B) of the Act prior to the petition date, and that therefore it may not be dealt with in the bankruptcy case or in the plan.

Cash America recognizes that § 108(b) of the Code⁸ extends the redemption period as provided by § 1511(B) of the Act as to the remaining two pawn transactions, but contends that the automatic stay of § 362(a) does not create or effect a further extension.⁹ Cash America therefore argues that through the operation of § 108(b) of the Code, the redemption period for both the April 8 and the May 18, 1991 transactions, which would have expired but for the filing of the bankruptcy petition on June 7 and July 18, 1991, respectively, expired on August 2, 1991, 60 days after the petition date. Thus, Cash America concludes that after that date, neither debtors nor the bankruptcy estate had any interest in the property, and that it may not therefore be dealt with in the plan.

Cash America contends that debtors' plan fails in two particulars to meet the requirements of § 1325(a)(5)(B) of the Code, and that therefore it can not be confirmed.¹⁰ It first cites §§ 1510(A) and (C) of the Act, which set the maximum interest rates allowable for pawn transactions, and contends that the present value of its claim should be computed using the statutory interest rates rather than the 10% per annum proposed under debtors' plan. Cash America next complains that debtors' plan contemplates the return of collateral to debtors prior to payment of Cash America's claim in full. It is argued that under the Act, a pawnbroker may perfect its liens only through possession, that it is permitted to have recourse only against the collateral pledged against the loan,¹¹ and that debtors' plan therefore does not provide for the retention by Cash America of its lien.

Cash America's final contention is that debtors' plan is contrary to Oklahoma law, since it proposes to grant to Cash America a recourse claim, which is not permitted by the Act, and that therefore the plan fails to meet the requirements of § 1325(a)(3) of the Code.¹²

On October 4, 1991, debtors filed their supplemental brief and disclosed that they had entered into an agreement with the manager of Cash America where debtors were allowed to redeem the items of the April 8, 1991, pawn ticket and agreed to redeem one item per month thereafter.

Debtors contend that courts have concluded that § 108(b) may be read consistently with § 362(a),¹³ and that § 362(a) controls over § 108(b).¹⁴ Debtors concede that Cash America is oversecured and that it is therefore entitled to the interest rates as provided in the pawn agreements, and that the 10 percent per annum proposed in their original plan was not adequate. Debtors further contend that they have amended their plan and now propose to pay Cash America in one immediate payment. Thus, it is argued that the remaining arguments of Cash America are moot.

Cash America filed a reply brief in which they object to confirmation of debtors' amended plan. Cash America asserts that its prior contentions are not rendered moot by debtors' amended plan. It reasserts that when collateral pledged to a pawnbroker is not redeemed within the time period as provided by State law, the collateral does not become property of the estate and may not be administered in a plan. It is also reasserted that if the time to redeem collateral has not expired as of the date of the petition, § 108(b) extends the redemption time for 60 days, and absent timely redemption, a plan may not modify liens affecting such property.

Cash America contends that other parties would object to debtors' amended plan based upon the preferential treatment provided to Cash America, since other creditors are paid over 3 years and Cash America is paid in full immediately. Cash America further contends that debtors' amended plan may not be feasible since the immediate payment proposed to be made to Cash America is approximately $800.

RELATIONSHIP BETWEEN SECTION 108(b) AND SECTION 362(a)

Section 541 creates a bankruptcy estate upon the commencement of a case which includes all of a debtor's legal and equitable interests.¹⁵ See Jim Walter Homes, Inc. v. Spears (In re Thompson), 894 F.2d 1227, 1230 (10th Cir.1990). State law creates and determines the dimensions of a property right. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). When debtors filed their petition, any property rights accruing under the pawn transactions became property of debtors' estate. Thus, the collateral which had been pawned and any period of redemption was part of debtors' estate. The issue before the court is whether debtors' right of redemption in the pawned collateral has terminated and therefore no longer part of the bankruptcy estate.

Courts are divided as to whether a statutory redemption period is stayed by § 362(a).¹⁶ In determining that a statutory redemption right is not stayed by § 362(a), some courts have found that the running of a statutory redemption right is not an "act" or "proceeding" within the meaning of § 362. Goldberg v. Tynan, (In re Tynan), 773 F.2d 177 (7th Cir.1985); In re Petersen, 42 B.R. 39 (Bankr.D.Or.1984). Further, it has been held that if the automatic stay of § 362 were held to prevail over § 108(b), the effect would be to enlarge property rights granted and circumscribed by State law, thus rendering the pertinent time allotments of § 108 unnecessary. Johnson v. First Nat'l Bank, 719 F.2d 270 (8th Cir.1983), cert. denied, 465 U.S. 1012, 104 S.Ct. 1015, 79 L.Ed.2d 245 (1984); Counties Contracting & Constr. Co. v. Constitution Life Ins. Co., 855 F.2d 1054 (3rd Cir.1988). Additionally, it is generally held that specific statutory references control over those which are general, and since § 108 specifically deals with redemption periods, it should control, with regard to such periods, over the more general provisions of § 362(a). In re Farmer, 81 B.R. 857, 861 (Bankr.E.D.Pa.1988). Thus, these courts have held that § 362(a) does not toll the running of the time period for redemption, and that the only available extension of time for such periods is the 60 days provided for in § 108(b). Counties Contracting, 855 F.2d at 1059; Whispering Bay Campground Inc., v. Fagan (In re Whispering Bay Campground, Inc.), 850 F.2d 443, 446 (8th Cir.1988); Heikkila v. Carver (In re Carver), 828 F.2d 463, 464 (8th Cir.1987); Federal Land Bank v. Glenn (In re Glenn), 760 F.2d 1428, 1440 (6th Cir.) cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d...