IN RE FULLER (Bankr.D.S.C. 2005)

Bky. No. 03-13352-B, Adv. Pro. No. 04-80103.United States Bankruptcy Court, D. South Carolina.
August 15, 2005

ORDER
WILLIAM BISHOP, Bankruptcy Judge

This matter comes before the Court on the Motion for Summary Judgment filed by Cash America Pawn of Charleston (“Defendant”) and Cynthia Nelson Fuller’s (“Debtor”) Objection thereto. In light of the record of this case, the oral arguments presented by the parties, and applicable law, the Court concludes that Defendant’s Motion for Summary Judgment should be denied in light of the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT
1. On September 2, 2003, Debtor entered a pawn transaction with Defendant in which she provided Defendant with seven pieces of jewelry as collateral for a $300.00 loan that she received from Defendant.

2. Apparently, on October 2, 2003, Debtor purchased an extension of the maturity date for her obligation to Defendant; and thus, November 2, 2003 became the new maturity date for the loan.

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3. On October 24, 2003, Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code.

4. The record of this case indicates that on October 26, 2003, a Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors and Deadlines was mailed to Cash America Pawn of Charleston, Attorney or Manager, 1208 North Main, Suite 102, Holly Hill, SC, 29059.

5. Debtor listed the seven pawned pieces of jewelry that served as collateral for Defendant’s loan on her bankruptcy Schedule B. Debtor also claimed an exemption for the jewelry on Schedule C.

6. On November 10, 2003, Debtor filed a proposed chapter 13 plan and a notice of such plan. A certificate of service indicates that Debtor served a copy of the proposed plan and notice on Defendant by mailing it to Cash America Pawn of Charleston, Attorney or Manager, 1208 North Main, Suite 102, Holly Hill, SC, 29059.

7. Defendant did not file an objection to Debtor’s chapter 13 plan which was later confirmed as amended on February 29, 2004.

8. On November 21, 2003, Defendant mailed Debtor a notice of forfeiture pursuant to the requirements of S.C. Code Ann. § 40-39-110 to the address that Debtor provided on the loan documents that she submitted to Defendant.

9. The parties have stipulated that the applicable forfeiture date with respect to the application of S.C. Code Ann. § 40-39-110 was January 2, 2004. They have also stipulated that the provisions of South Carolina’s enactment of Article 9 of the Uniform Commercial Code govern their pawn transaction.

10. Defendant sold, scrapped, or otherwise disposed of the seven pieces of the jewelry that Debtor provided as collateral on the following dates: December 9, 2003; December 12, 2003; December 26, 2003; December 29, 2003; January 26, 2004; and July 8, 2004.

CONCLUSIONS OF LAW
Rule 56(c) of the Federal Rules of Civil Procedure, which is applicable to adversary proceedings in bankruptcy cases under Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment shall be granted “if the pleadings, depositions, answers to

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interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.” In re K P Logging, Inc., 272 B.R. 867, 871
(Bankr. D.S.C. 2001). In this case, there appear to be no genuine issues of material fact. However, in light of the record of this case and applicable law, the Court concludes that Defendant, as the moving party seeking summary judgment, is not entitled to judgment as a matter of law because it undertook certain actions that violated the automatic stay provided by § 362. Accordingly, the Court denies Defendant’s motion for summary judgment.

In this case, the critical legal issue that the Court must determine is whether Debtor is not entitled to assert her rights under 11 U.S.C. § 362[1] to prevent the transfer of title of certain pawned jewelry from Debtor to Defendant under S.C. Code Ann. § 40-39-110.[2] Defendant contends that the provisions of § 108(b) required Debtor to redeem her rights in the pawned jewelry within the sixty (60) days prescribed by S.C. Code Ann. § 40-39-110 or, as the parties have stipulated, on or before January 2, 2004. According to Defendant,

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Debtor’s automatic stay protection under § 362(a) did not stay or toll the expiration of the redemption period provided by S.C. Code Ann. § 40-39-110.[3] Additionally, Defendant contends that it did not violate the automatic stay because it did not undertake any affirmative act to trigger the forfeiture of Debtor’s interests in the pawned jewelry in its possession. Defendant takes the position that the forfeiture is simply the product of Debtor’s failure to pay Defendant on or before January 2, 2004. This Court disagrees.

I. Debtor’s Property Interests in Collateral at Commencementof Case

As an initial matter, the Court must first determine and define the nature and extent of Debtor’s property interests in the pawned jewelry on the date of Debtor’s bankruptcy filing. Here, Debtor filed her bankruptcy case on October 24, 2003, approximately nine days before the November 2, 2003 maturity date that Defendant extended to Debtor. Thus, as of October 24, 2003, Debtor’s property interests in the pawned jewelry had not become a right of redemption under S.C. Code. Ann. § 40-39-110 since she was not in default on her obligation to repay Defendant by November 2, 2003. See S.C. Code Ann. § 40-39-110 (“If any loan remains unpaid for a period of sixty days from the due date or any renewal or extension thereof, the title of the borrower or pledgor to the property pledged to secure the loan shall vest in the pawnbroker. . . .”) (emphasis added). Therefore, on the filing date, Debtor maintained title to the pawned jewelry. Accordingly, the pawned jewelry was

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property of Debtor’s bankruptcy estate, and Defendant was simply a secured creditor by virtue of its possession of Debtor’s collateral with no greater rights afforded to any other secured creditor in Debtor’s case.

II. Implications of the Automatic Stay

In an effort to enforce its rights under S.C. Code Ann. § 40-39-110, Defendant mailed a written notice of the impending forfeiture to the address that Debtor provided to Defendant on the pawn ticket that memorialized the parties’ transaction. See
S.C. Code Ann. § 40-39-110 (“[T]he title of the borrower or pledgor to the property pledged to secure the loan shall vest in the pawnbroker, without advertising, sale, or accountability to the pledgor, . . . if a printed or written notice of the impending forfeiture is mailed to the pledgor at the address given on the pawn ticket, at least ten days prior to the forfeiture date.”) (emphasis added). Defendant’s postpetition act of mailing the notice of forfeiture enabled Defendant to take advantage of the automatic forfeiture provided by S.C. Code Ann. § 40-39-110. Since the mailing of the notice enabled Defendant to infringe Debtor’s interests in the pawned jewelry under S.C. Code Ann. § 40-39-110, § 362 stayed Defendant’s act of mailing the written notice. See 11 U.S.C. §§ 362(a)(3) (6) (staying “any act to . . . enforce a lien against property of the estate” or “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.”).

However, mailing the notice of forfeiture is not the only act that violated the automatic stay provided by § 362. In this case, Defendant sold five pieces of the pawned

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jewelry before the sixty (60) day grace period that S.C. Code Ann. § 40-39-110 provided to Debtor.

Defendant asserts that selling the jewelry prior to January 2, 2004 is of no consequence because Debtor made no effort to redeem her interest in the jewelry by repaying the loan. The record of Debtor’s bankruptcy indicates otherwise. First, as noted earlier, at the time of Debtor’s bankruptcy filing Debtor’s interest in the pawned jewelry was not simply a right of redemption because the November 2, 2003 maturity date had not expired. Furthermore, on November 10, 2003, Debtor filed a proposed chapter 13 plan and a notice of such plan with the Court. Debtor also mailed a copy of the proposed plan and notice to Defendant. Under the terms of the plan, Debtor proposed to pay Defendant $13.00 or more per month during the life of the plan in order to repay the loan amount plus 8.5% interest. Thus, Debtor took advantage of chapter 13’s provisions as the means to repay Defendant.

Debtor properly elected to reorganize her obligations to Defendant through her proposed chapter 13 plan because § 1322(b)(2) in pertinent part provides that a chapter 13 plan “may modify the rights of holders of secured claims. . . .” Debtor’s rights under § 1322(b)(2) were materially prejudiced by Defendant’s postpetition sale since the sale of the pawned jewelry infringed on her ability to reorganize Defendant’s claim through her chapter 13 plan so as to retain her collateral. There was simply no need for Defendant to sell the pawned jewelry to collect its secured claim. Under chapter 13, secured creditors retain their liens during the life of a plan. Here, Defendant’s lien arises from possession of the pawned

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jewelry which it was not required to return to Debtor until completion of her plan payments, unless Debtor immediately repaid Defendant in full with a lump sum payment or substituted Defendant’s possessory lien with a financing statement.

Moreover, § 1326(a)(1) states, “[u]nless the court orders otherwise, the debtor shall commence making the payments proposed by a plan within 30 days after the plan is filed.” Since Debtor filed her plan on November 10, 2003, she was required to commence making payments to Defendant on December 10, 2003, a date well before the January 2, 2004 forfeiture date. Defendant, thus, enjoyed a double recovery by collecting amounts owed on its claim through the sale of the pawned jewelry and receiving payments under Debtor’s chapter 13 plan. Therefore, since Debtor modified her relationship with Defendant pursuant to § 1322(c) and made some effort to pay Defendant pursuant to the terms of her chapter 13 plan, the Court concludes that selling the pawned jewelry is also a violation of the stay.

III. Conclusion

Therefore, in light of the foregoing the Court denies Defendant’s Motion for Summary Judgment.

AND IT IS SO ORDERED.

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