Secured Creditors in a Bankruptcy or Proposal

 A secured creditor is one that has a charge over an asset, for example a mortgage on a house or a loan secured on a car. Secured creditors are not generally affected by a bankruptcy or proposal. Usually, you just go on making the payments and you retain the asset in question. Our experience is that most secured creditors are entirely happy with this arrangement, provided you are not in arrears on your payments.

It should be noted, however, that if you wish to stop making the payments to the secured creditor and return the asset to them, any shortfall for which you might then become liable can be included in a proposal or bankruptcy. If, for example, you had financed a boat for $20,000 and it was eventually sold for $15,000 the $5,000 shortfall can be included.

Accordingly, you need to consider whether you wish to keep a particular asset that is subject to a secured debt because you cannot change your mind later and decide to return it. Many lenders will ask you to sign an “affirmation” agreement that you are again agreeing to assume and pay the particular secured debt.

For greater clarity, the fact that an asset is “exempt” does not mean that it is exempt as against secured creditors. In Saskatchewan, for example, a vehicle is exempt if it is required for your job or business. If however the vehicle is financed you would still have to pay the finance company, the exemption only applies against unsecured creditors and/ or the Trustee in Bankruptcy.

As always, please contact our nearest office for a free initial consultation if you wish to review your situation and your options. 

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