FAQ

Secured Creditors

How Do I Deal With My Secured Creditors?

A secured creditor is a creditor who obtained the right to use your assets as collateral to repay your debts as a condition of lending money to you or selling an asset to you. An example of a secured creditor is a mortgage company – when you purchased your home you gave the lender security, a mortgage against the property, to insure that the loan will be repaid.

Another example of a secured creditor is a finance company. They have a right against your assets as a term of the financial arrangement that you made with them. Sometimes the finance company purchases your finance contract directly from the group that sold you assets initially.

It is important that you realize that the secured creditor has to be dealt with if you want to keep the assets that were pledged as security.

If you are behind in payments or have a bad history with the secured creditors it is unlikely that the secured creditors will agree to let you keep the assets that you secured with them if you file a proposal or bankruptcy. .

If the secured creditor believes that his security (your assets) are at risk, the assets would be removed from your possession.

Your failure to insure, to pay property taxes or condo fees are situations that a secured creditor would consider placing his security at risk.

Creditors who take security against homes in the form of mortgages have to be careful when they attempt to recover their loans by selling the assets. The Courts will protect the owner’s equity in the real estate if the owner can show that there is equity and the owner has been dealing in a fair manner. If a foreclosure is started, all that may be needed to stop the foreclosure action is to pay the arrears and the legal costs incurred by the secured creditor.

In many cases where the secured creditor has financed consumables, it is likely that the asset securing the secured loans is not worth the amount of secured debt. It may be possible to negotiate a settlement of the secured debt down to the value of the asset. If the secured creditor is not prepared to negotiate the debt, the asset could be turned back to the secured creditor. Any shortfall that the secured creditor experiences would be an unsecured debt and normally would be settled with a proposal or bankruptcy.

If there is a good history, most secured creditors will continue financing with a person that has filed bankruptcy. There is one exception: The Royal Bank of Canada has advised Trustees across Canada that they typically will not continue financing vehicle with a person who has filed bankruptcy. We have seen some softening on this position, however we believe that people who have vehicles financed with the Royal Bank of Canada should consider alternative vehicles or financing.

In summary people with secured creditors have the following option:

It is important that a person who decides to continue a finance contract on a secured asset realizes that if something in the future happens to make continuation of the contract impossible, the liability for the contract will not be affected by filing a bankruptcy or proposal prior to accepting responsibility for the contract. The secured creditor will treat the debt as post-proposal or post-bankruptcy and will expect payment of any shortfall. Any person experiencing financial difficulty should be absolutely sure that they can afford the assumption of a secured loan against their assets prior to making a commitment to assume that security.