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Secured Creditors

Secured creditors and secured debts in bankruptcy & proposals

Secured creditors are lenders who have collateral for the loan or purchase on credit. Secured debts are these debts, backed by collateral, which will be claimed by the lender in the case of default on payment. These debts include mortgages and car loans, and the lender can foreclose and repossess your house and car if you fall behind or stop payments.

Bankruptcy and secured debts

If you file for bankruptcy your trustee controls all your non-exempt assets and uses them to discharge your unsecured debts. Secured debts, if you choose to keep the asset and continue your payments, are not discharged by bankruptcy. These debts remain, and must be paid or your creditors can foreclose.

A creditor cannot seize your asset simply because you filed for bankruptcy.  Additionally, lenders often prefer to keep the mortgage or financing going if you can afford the payments. However, this will only happen if you keep up to date on your mortgage or financing payments. If you are heading into financial distress, seek professional advice as soon as possible.

Your licensed insolvency trustee will help you determine how best to address secured assets. Any equity from your assets will be realized by the trustee for your bankruptcy estate, and used to repay your creditors.

Negative equity and secured debts

If an asset, such as your house, is worth less that the amount you would have to pay to keep it (including mortgage, outstanding taxes, legal fees, and bills) then you have negative equity. If so, and if you do not want to keep that asset it can be dealt with at the time you file for bankruptcy. If the asset is given up when you file any deficiency balances after the asset is disposed are discharged in your bankruptcy.

Consumer proposals and secured debts

Secured debts and assets are not affected by consumer proposals. If you are eligible for a consumer proposal, your assets are not used to deal with your unsecured debt unless specified in the proposal and secured creditors do not participate in the consumer proposal.

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