How Are Secured Debts Treated In Personal Bankruptcy or a Consumer Proposal?

The majority of consumers who file for personal bankruptcy or file a consumer proposal have some type of secured loan such as a mortgage, vehicle or investment loan.   These loans allow the lender to take back the asset should the borrower default on the loan payments.

When an individual files for bankruptcy or a consumer proposal these loans are not always impacted and the assets can usually be kept as long as the loan payments are current and continue to be made in accordance with the credit agreement.

However, if the bankrupt or consumer debtor does not wish to keep the asset they can choose to walk away from the debt and allow the secured creditor to take possession of the asset.  If there is a balance remaining after the lender sells the asset, the debt will be included as an unsecured debt in the bankruptcy or consumer proposal proceedings.

Another way that lenders secure a loan is by having a third party co-sign for the debt.  If the borrower decides to file for bankruptcy or file a consumer proposal, the lender can no longer collect from from the borrow however they still have the legal right to pursue the co-signer.

If you have questions around secured or unsecured debts and how you might be impacted by a bankruptcy or consumer proposal process please contact us for a free, confidential consultation.   Powell Associates Ltd. is a licensed insolvency trustee with offices in Saint John, FrederictonMoncton and Charlottetown.