In In re Chastagner, Ch. 7 Case No. 12-11488, 2013 Bankr. LEXIS 3240,(Bankr. S.D. Ga. August 8, 2013) (click here for .pdf of opinion), Judge Barrett, in a thorough discussion of Georgia title pawn law, held that a Chapter 7 debtor cannot avoid a lien on a vehicle pursuant to 11 U.S.C. §522(f). Further, because the Debtor did not timely redeem the vehicle post-petition, his rights in the vehicle were extinguished and ownership of the vehicle vested in TitleMax, the pawn broker.
Prior to filing his Chapter 7 petition, the Debtor entered into an agreement with TitleMax in which he pledged his vehicle in exchange for $4,934.82. The original maturity date was January 24, 2012 but was extended several times, with a final maturity date of September 2, 2012. Debtor filed his Chapter 7 petition on August 20, 2012, prior to redeeming the vehicle. Debtor subsequently filed a motion to avoid TitleMax’s lien pursuant to §522(f) to the extent the lien impaired his exemption in the vehicle.
The title pawn agreement provided the following:
You hereby grant to us a security interest in your motor vehicle. In consideration of your payment of $5,427.81 (which is the cost to the seller or pledgor to redeem the merchandise in this period of the transaction), delivery to us of the motor vehicle’s certificate of title, and agreement to pay all the fees, sums, interest, charges and amounts pursuant to O.C.G.A. §44-12-130 et seq. and disclosed herein, we agree to lend you $4,934.82. . . . [I]f you choose to redeem or repurchase the pledged goods, then you must pay us in cash the Total of Payments listed below on the specified maturity date of the pawn transaction, which is 09/05/2012….
The pledged goods may be redeemed for thirty days after the Specific Maturity Date or the extended maturity date . . . . You may redeem the motor vehicle within the grace period by the payment of any unpaid accrued fees and charges, the re-payment of the principal, and the payment of an additional interest charge . . . [i]f the motor vehicle is not redeemed within the grace period it shall be automatically forfeited to us by operation of O.C.G.A. §44-14-403, and any of your ownership interest in the motor vehicle shall automatically be extinguished. After the grace period the pledged goods become the property of the pawn broker. . . . If you are in default, we have the right to take possession of the motor vehicle…Security: You are giving a security interest in the motor vehicle…[W]e have a lien on the motor vehicle pawned for the money advanced, interest, and pawnshop charge owed but not for other debts due to us. We may retain possession of the pledged goods until the lien is satisfied and may have a right of action against anyone interfering therewith.
Debtor argued that the language in the pawn agreement created a security interest, and because he was in possession of the vehicle and the pawn had no matured as of the petition date, the lien could be avoided pursuant to §522(f). Judge Barrett disagreed.
Pursuant to the agreement, the nature and extent of Debtor and Titlemax’s rights in the Truck must be deter-mined under Georgia law respecting pawn transactions…In a Georgia pawn transaction involving a motor vehicle, the title lender receives a statutory lien on the vehicle, and the lender’s possession of the certificate of title is ‘conclusively deemed to be [legal] possession of the motor vehicle’ . . . After a thirty-day ‘grace period,’ the pledgor’s ownership interest in the vehicle is automatically forfeited to the title lender, the ownership interest in the vehicle is automatically extinguished, and the title lender may dispose of the vehicle. This provision for the automatic extinguishing of the pledgor’s ownership rights eliminates the need for action on the part of the title lender to acquire title to the vehicle…Unlike the typical secured transaction, where a lender must take affirmative steps in order to obtain title, in Georgia a pawnbroker’s rights accrue automatically by operation of law. O.C.G.A. §44-14-403(b)…Section 108(b) [11 U.S.C. §108] extends this time up to 60 days following the petition date. Debtor failed to redeem within this time period, therefore title to the Truck was automatically forfeited to Titlemax.
Accordingly, in the case sub judice, the rights of Titlemax “are different from the rights that the holder of a security interest or other lien has in encumbered property to secure a debt,” and they receive different treatment under the Bankruptcy Code…Section 108(b) of the Bankruptcy Code protects the bankruptcy estate from the automatic operation of state law, as for redemption periods by extending the time to redeem…Georgia law provides that all pawn transactions shall mature in 30 days unless extended, and that subsequently, a 30 day, post-maturity redemption period runs during which additional interest may be charged. O.C.G.A. §44-12-131(a) (1) (“All pawn transactions shall be for 30 day periods but may be extended or continued for additional 30 day periods”); O.C.G.A. §44-14-403(b)(1) (“There shall be a grace period on all pawn transactions. On pawn transactions involving motor vehicles or motor vehicle certificates of title, the grace period shall be 30 calendar days.”). During these two successive redemption periods, Titlemax had a statutory lien against the Truck “for the money advanced, interest, and pawnshop charge owed” under O.C.G.A. §44-14-403(a). However, it also had a right to obtain automatic, full ownership in the Truck upon Debtor’s failure to pay the redemption price…Because Debtor did not redeem the Truck within the time allowed under 11 U.S.C. §108, title to the Truck vested in Titlemax. Section 522(f) cannot be utilized by Debtor as it only avoids “the fixing of lien of the interest of a debtor in property” . . . if the lien is a nonpossessory, nonpurchase money lien.