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Understanding Secured Debt

A secured debt represents a debt or loan where the lender, usually a financial institution such as a bank, holds some form of collateral, usually a residence or motor vehicle, that has been pledged or given by a borrower as security to the lender for repayment of a loan. The most common forms of secured debts or loans include:

  • A mortgage where a residence, recreational property, vacant land or motor vehicle is pledged as security;
  • Home equity lines of credit where a residence or recreational property is pledged as security; and
  • Motor vehicle loans where a vehicle, quad, snowmobile or similar property is held as security.

If there is a default on the payments of a secured debt by the borrower, then the lender has the legal authority to repossess the collateral to recover the amount owing for the loan.

When considering a consumer proposal or personal bankruptcy debt restructuring plan, you have two options when it comes to secured debts or loans.

Option 1:

If you want to retain possession of the collateral, usually a residence or motor vehicle, then you must continue to make the mortgage or loan payments.

Option 2:

You may surrender the collateral, usually a residence or motor vehicle, and discontinue making the mortgage or loan payments. The lender will dispose of the collateral and any shortfall or balance that remains owing becomes an unsecured debt that is included in your restructuring plan.

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