How Are Secured Debts Treated In Personal Bankruptcy or a Consumer Proposal?
Updated: March 1, 2022
The majority of consumers who file personal bankruptcy or a consumer proposal have secured loans 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 you file personal bankruptcy or a consumer proposal, these loans are not always impacted. You can keep these assets as long as the loan payments are current and stay current, and payments are made in accordance with the credit agreement.
However, if you do not wish to keep the asset, you can choose to walk away from the asset and allow the secured creditor to take possession of it. If there is debt after the lender sells the asset, the debt will be included as an unsecured debt in the bankruptcy or consumer proposal.
Lenders also secure a loan by having a third party co-sign for the debt. If the borrower decides to file bankruptcy or file a consumer proposal, the lender can no longer collect from the borrow; however, they still have the legal right to pursue the co-signer. Knowing which debts will be released in a consumer proposal or bankruptcy is very important and paramount to which option you choose.
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