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The Treatment of Pawn Shop Loans in Chapter 13 Bankruptcy

The Treatment of Pawn Shop Loans in Chapter 13 Bankruptcy
"""The pawn industry is thriving. However, pawn stores do business with more than just the working poor. Instead, middle- and upper-income borrowers are turning to pawn shops to obtain the funds necessary for mortgage payments, vehicle loans, school tuition, and even necessities such as food and apparel. This trend has been noted by pawn industry trade publications, and an increasing number of pawnbrokers are opening locations in upscale retail centers. Specialty pawn shops now resemble jewelry stores more than merchandise-filled pawn shops, and they solicit affluent customers openly. The Atlanta pawn shop ""The Happy Hocker,"" which specializes in jewelry and watches, bills itself as the ""pawn shop of the rich and famous.""

These wealthy debtors are also being represented by bankruptcy attorneys. While the 2005 changes to the nation's bankruptcy laws generally require affluent debtors to file Chapter 13, the number of bankruptcy filings by families with household incomes of $100,000 or more has steadily increased. In an effort to raise funds, many of these high-income bankruptcy filers have pledged collectibles, jewelry, electronics, watches, and family heirlooms. These pawn debtors risk their property unnecessarily if they are unaware of deadlines and default clauses due to their fear, embarrassment, and ignorance of how pawn shops operate.

In most instances, the default provisions of the pawn loan pose the greatest risk to the borrower. Upon default, the collateral is typically transferred to the pawn broker. Therefore, if a borrower is contemplating filing for bankruptcy, he should do so before the collateral loan goes into default and/or before title is transferred.

Despite the fact that federal bankruptcy laws are pertinent in every state, pawn shop laws vary from state to state. Generally, a bankruptcy court will rely on local laws to determine when a collateral loan has become delinquent. Local laws will also stipulate what a borrower must do to avoid defaulting on his collateral loan; typically, this involves making an interest payment.

In most states, if the debtor files for Chapter 13 bankruptcy while the collateral transaction is still active, the debtor will retain ownership of the property. The automatic stay in bankruptcy prevents the pawn broker from selling the collateral, and the Chapter 13 plan allows the debtor to repay the pawn loan as a secured debt. The creditor may not receive immediate possession of his property, but at least he knows it is secure.

In contrast, Chapter 13 may not be as helpful once the title has expired. In this case, the pawned goods do not become part of the debtor's bankruptcy estate, and the loan is therefore not included in the plan. There are some arguments that a savvy attorney may use to reclaim the pawned property for the bankruptcy estate, but this is a difficult process.

Therefore, as a general rule, pawn borrowers should register for Chapter 13 bankruptcy before their pawn transactions default. Prior to default, the pawn borrower should consult with an attorney to learn more about the applicable state law and the local bankruptcy procedures pertaining to pawn loans.

" - https://www.affordablecebu.com/
 

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"The Treatment of Pawn Shop Loans in Chapter 13 Bankruptcy" was written by Mary under the Finance / Wealth category. It has been read 165 times and generated 0 comments. The article was created on and updated on 02 June 2023.
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