## Facts

- Michelle Renee Schwalb filed a Chapter 13 case and proposed a plan requiring determination of Pioneer Loan & Jewelry’s rights in two vehicles (a 1997 Infiniti and a 2002 Cadillac).
- Pioneer, a pawnbroker offering “title pawn” transactions, advanced funds to Schwalb using the vehicles as collateral while Schwalb retained possession and use of both vehicles.
- Pioneer held certificates of title listing it as owner and relied on pawn-ticket terms asserting ownership and an automatic forfeiture mechanism on default.
- The transaction terms reflected an extremely high effective annual rate (about 120%), and by the petition date Pioneer claimed more than double the original principal.
- Pioneer argued it was the vehicles’ exclusive owner (so the debtor held no meaningful legal or equitable interest), or alternatively that it held a large secured claim that made the plan infeasible.
- Schwalb contended the arrangement was a secured loan governed by Nevada’s UCC Article 9, that the forfeiture provision was invalid, and that Article 9 violations required offsets and damages reducing any allowed secured claim.
- Pioneer did not file a proof of claim; Schwalb asserted Pioneer therefore had no unsecured claim in the case.
- The bankruptcy court tried the disputes at the plan-confirmation hearing and issued an amended opinion resolving the characterization of Pioneer’s interest and the plan-treatment consequences.

## Issues

1. Whether Pioneer’s “title pawn” arrangements constituted an outright transfer of vehicle ownership or a security interest governed by Nevada’s UCC Article 9.
2. Whether Article 9 applied to these transactions and, if so, whether the pawn-ticket forfeiture provision and Pioneer’s enforcement conduct complied with Article 9, including nonwaivable debtor protections.
3. How Pioneer’s rights and claim should be valued and treated in Chapter 13, including whether Article 9 violations warranted damages or offsets and whether Pioneer held any unsecured claim without a proof of claim.

## Decision

- The court held Pioneer was a secured creditor with an Article 9 security interest in the vehicles, not the vehicles’ exclusive owner.
- The court ruled Nevada’s UCC Article 9 applied to the transactions and rendered the pawn-ticket’s automatic forfeiture clause unenforceable.
- The court found Pioneer committed multiple violations of Article 9’s enforcement provisions and imposed statutory damages and offsets that substantially reduced Pioneer’s allowed secured claim.
- The court determined Pioneer had no unsecured claim in the case because it did not file a proof of claim.
- The court concluded the debtor could propose a feasible Chapter 13 plan once Pioneer’s claim was recharacterized and reduced, and required an amended plan treating Pioneer as a secured creditor with present-value payments over the plan term (described in the record as 36 months at 10% interest).

## Legal Principles

- Courts determine the substance of a transaction based on its economic reality; holding “paper title” while the debtor retains possession and use generally indicates a secured lending relationship rather than an absolute transfer of ownership.
- Nevada’s UCC Article 9 governs attachment, perfection, and enforcement of security interests in personal property when the transaction functions as a secured loan, even if styled as a “title pawn.”
- Contract terms purporting to effect automatic forfeiture of collateral upon default are unenforceable to the extent they conflict with Article 9’s enforcement scheme, including the debtor’s right of redemption and limits on waiver of statutory protections.
- A secured creditor’s failure to comply with Article 9’s post-default requirements can trigger statutory remedies, including damages and offsets that reduce the creditor’s allowed secured claim.
- In Chapter 13, recharacterization and valuation of a creditor’s interest determine plan treatment and feasibility; a creditor that does not file a proof of claim generally does not receive distribution on an unsecured claim.

## Conclusion

The bankruptcy court treated the “title pawn” arrangements as Article 9 secured transactions rather than transfers of ownership, invalidated an automatic forfeiture provision, and applied statutory damages and offsets for enforcement violations to reduce the creditor’s allowed secured claim, conditioning Chapter 13 confirmation on an amended plan that paid the corrected secured amount with present value.


In re Schwalb, 347 B.R. 726 (Bankr. D. Nev. 2006)