In re Young

• Decision Date: 08 March 2001
• Docket Number: No. 00-13522-WSS-13.,00-13522-WSS-13.
• Citation: 281 B.R. 74
• Parties: In re Elbert Allen YOUNG, Jr., Marie McKenzie Young, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Alabama

281 B.R. 74

In re Elbert Allen YOUNG, Jr., Marie McKenzie Young, Debtors.

No. 00-13522-WSS-13.

United States Bankruptcy Court, S.D. Alabama.

March 8, 2001.

Herman D. Padgett, Mobile, AL, for Debtors.

Christopher Kern, Mobile, AL, Richard Wright, Mobile, AL, for Cash America International, Inc. J.C. McAleer, III, Mobile, AL, Chapter 13 Trustee.

ORDER

WILLIAM S. SHULMAN, Bankruptcy Judge.

The matter before the Court is a motion to enforce the automatic stay against Cash America International, Inc., filed by Elbert Allen Young, Jr. and Marie McKenzie Young, (hereinafter referred to as the "Debtors") on October 31, 2000. A hearing was held on December 12, 2000. Herman D. Padgett appeared on behalf of the Debtors, along with J.C. McAleer, III, Chapter 13 Trustee, and Christopher Kern, the attorney for Cash America International, Inc. (hereinafter referred to as "Cash America"). The Court has taken judicial notice of the bankruptcy schedules, plan, notice of first meeting of creditors, and the order of confirmation. The matter was submitted on written stipulation of facts and arguments of counsel along with evidence.

FINDINGS OF FACT

The Debtors filed the present Chapter 13 case on September 6, 2000. On May 5, 2000, Debtor Marie McKenzie Young entered into a pawn transaction with Cash America wherein $300.00 was advanced to the Debtor by Cash America in exchange for the pledge of musical equipment consisting of a digital recording studio. This pawn transaction was documented by a written pawn ticket which was admitted as evidence.

To pay Cash America and other creditors, Debtors originally sought to fund their Chapter 13 plan with payments to the Chapter 13 Trustee in the amount of $238.00 a month for a period of sixty (60) months. The Debtors' schedules listed Cash America as a secured creditor in the amount of $ 420.00 and proposed to pay Cash America through their plan 100% up to $ 420.00. The order confirming the plan was entered by this Court on November 3, 2000 and ordered the Debtors to pay the sum of $276.00 per month to the Chapter 13 Trustee. Cash America was included in the order confirming the plan as a secured creditor to be paid up to $420.00. The order of confirmation further provided in paragraph 4 that

"A holder of a secured claim shall retain the lien securing the claim, unless otherwise provided in the plan."

The pawn transaction entered into on May 5, 2000 had a maturity date of June 4, 2000. The pawn transaction was renewed by Marie Young on July 5, 2000. A second pawn ticket was issued on the same printed form as Exhibit "1", and had a new maturity date of August 4, 2000.

The parties have stipulated that the Debtors did not renew, redeem, or make payment on the renewed pawn transaction before its maturity of August 4, 2000, or at any time since the date of the transaction.

ISSUE

Can an order confirming a Chapter 13 plan treating a pawn transaction as a secured claim bind the pawn broker when the redemption period has not expired as of the date of confirmation?

CONCLUSIONS OF LAW

The motion filed by the Debtors seeks to enforce the automatic stay under 11 U.S.C. § 362(a) to prevent Cash America from selling the musical equipment which was pawned prior to filing their petition in Chapter 13. The memorandum of law submitted by Cash America asserts that the pawned goods of the Debtors are no longer part of the Debtors' estate because they failed to redeem them, and that the automatic stay does not prevent Cash America from taking action against the property it holds in its possession.

The Alabama Pawn Shop Act provides that each pawn ticket must state the maturity date of the pawn transaction as well as the amount due and that "pledged goods not redeemed within thirty days following the maturity date shall be forfeited to the pawn broker and absolute right, title, and interest in and to the goods shall vest in the pawn broker." Ala.Code (1975), § 5-19A-3 (7); § 5-19A6. The pawn ticket in evidence sets forth a redemption date of sixty days, thirty days longer than the statutory redemption period. See Ala.Code, § 5-19A-10.

The parties agreed that the pawn transaction which was renewed on July 5, 2000 had a maturity date of August 4, 2000 and a contractual redemption date of October 4, 2000. The property has remained in possession of Cash America at all times relevant to this proceeding. Cash America argues that the Debtors no longer have any property interest in the collateral because they have failed to redeem it.

Under § 541(a), an "estate is comprised of all of the following property, wherever located and by whomever held: (1) except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a). At the time the Debtors filed Chapter 13 on September 6, 2000, the Debtors were within the redemption period set forth in the pawn ticket contract. Therefore, at the time they filed Chapter 13, the Debtors still held a right of redemption in the musical equipment, making it property of the estate under the Bankruptcy Code protected by the automatic stay. See In re Jackson, 133 B.R. 541 (Bankr.W.D.Okl.1991); 11 U.S.C. § 541(a), § 362(a)(3) and § 1306(a). Since the redemption period had not expired prior to bankruptcy, § 108(b) of the Code extended the redemption period sixty days after the date the petition was filed to November 6, 2000. 11 U.S.C. § 108(B).¹ See In re Jackson, 133 B.R. 541 (Bankr.W.D.Okl.1991); In re Dunlap, 158 B.R. 724 (M.D.Tenn.1993); Cash America Pawn v. David Murph, 209 B.R. 419 (E.D.Tex.1997).

For a debtor to modify a pawn contract under § 1322, the Court must first determine whether the redemption period has expired. If a redemption period has expired prior to the filing of bankruptcy, then the contract may not be modified because this remedy applies only to property in which the estate retains an interest. Under those circumstances, neither the debtor nor the estate have a legal or equitable interest in the property as of the petition date because all title and interest in the goods have vested in the pawn broker upon the expiration of the redemption date. Ala.Code (1975) § 5-19A-6. "`The debtor succeeds to no greater interest in an asset than that held by the debtor at the time that the petition is filed.'" In re Dunlap, 158 B.R. at 727.

However, the facts in the instant case are different in that the redemption period had not expired as of the petition date. The cases cited in Cash America's brief are distinguished by another critical fact as well.² The Debtors' plan was confirmed prior to the expiration of the extended redemption period given by § 108(b) without any objection from Cash America. The Debtors scheduled Cash America as a secured creditor and Cash America has not made an issue of notice of the confirmation hearing. The plan offered to pay Cash America as a secured creditor up to $420.00 on their secured claim. The Court must determine whether an order confirming the plan and modifying the contract of Cash America is res judicata.

Under § 1322(b), a plan may "modify the rights of holders of secured claims, ...". 11 U.S.C. § 1322(b). § 1327 of the Bankruptcy Code states that "the provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a).

A "creditor" is defined as an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor". 11 U.S.C. § 101(10). A "claim" means a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (B) right to an equitable remedy for breach or performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured". 11 U.S.C. § 101(5).

Cash America insists that because the pawn transaction is nonrecourse as to the Debtors, it has no debtor/creditor relationship.³ It maintains that the relationship was simply a transfer of property subject to redemption within state law and contractual limitations. However, such a strained interpretation is misplaced.

The definition of a pawn transaction under the statute uses the word "loan". See Ala.Code § 5-19A-2. The statute further mandates that each pawn ticket contain the amount of cash advanced, the maturity date of the transaction, the "amount due" and the "monthly rate". See § § 5-19A-3(6), (7), (8). Further, a pawn broker is authorized to "receive a pawn shop charge in lieu of interest" and sets limits on interest rates. See § 5-19A7. A pawn broker is granted a "lien on the pledged goods pawned for the amount of the money advanced and the pawn shop charge owed". See § 5-19A10.

The pawn ticket introduced into evidence states that the debtor is giving a security interest in the described goods, sets forth an annual percentage rate of 240%, refers to the "credit" extended and even has a repayment schedule on the form.

While the pawn transaction may be nonrecourse, it is clear that if the Debtors want to redeem the property, both parties contemplate the Debtors having to pay the amount advanced and all charges and interest. Black's Law Dictionary defines "contingent" as "possible but not assured; doubtful or uncertain; conditioned upon the occurrence of some future event which is itself uncertain or questionable." A "contingent claim" is defined as "one which has not accrued and which is dependent upon some future event that may never happen." (Black's Law Dictionary, Sixth Edition, 1990). Even though the Debtors have no obligation to...