Most potential bankrupts who own a home or have a car owe money to a secured lender against those assets. We’ll explore how this affects how these assets, and their debts, are dealt with in a bankruptcy or consumer proposal in Canada.
What are Secured Debts?
Secured debts are those debts that involve some kind of collateral. That means that there is something of value, such as your house or vehicle that the lender can take back and sell, to recoup some of their money if you are unable to make payments. Secured debts like these are not usually impacted in an insolvency situation, as long as the payments remain up-to-date.
What If My Payments Are Not Up-To-Date? Do I Lose My Belongings?
Secured debts get tricky when they are not up to date. When the payments on these items have fallen behind you need to make a choice before you file a bankruptcy.
If, while reviewing your monthly budget an extremely large portion of your income is used up making mortgage payments or secured car payments, it may be time to consider voluntarily surrendering the secured asset. By surrendering the item before you file, any remaining debt becomes an unsecured debt (because collateral has been returned) and it can be included in your bankruptcy.
If you decide to keep the asset and then default on your payments, the amount remaining on the loan once the item has been sold will be a new debt and it will not be included in your current bankruptcy.
What If My Debt Is Co-Signed?
Another issue that we should discuss is a co-signed debt. These debts may or may not be secured by collateral, but they have been guaranteed by your co-signer. When you file a bankruptcy, the lender can no longer seek collection activity against you; however, they do have the legal right to pursue the co-signer for the full amount of the debt.
If you would like to discuss secured or co-signed debts in more detail, contact a Bankruptcy Canada Trustee today for a free confidential consultation.