Secured debt is a mortgage or loan that is secured by some form of collateral (asset or property) such as your residence, car, or recreational vehicle that you pledge as security to the lender to obtain the loan. The most common forms of secured mortgages debts or loans include:
– A mortgage where a residence, cottage, or vacant land is pledged as security;
– Home equity lines of credit where a principal residence is pledged as security; and
– Vehicle loans where a motor vehicle, travel trailer, quad, snowmobile or similar property is held as collateral.
Typically, secured loans have a lower rate of interest when compared to unsecured loans as the lender holds collateral as security.
If you default on repayment, the lender—typically a financial institution—has the legal right to seize the property or asset you provided as collateral, sell it and use the money to pay back the debt. If the collateral is sold for less than you owe you will be required to pay the shortfall and the lender, in most cases, will sue you to recover the shortfall.
When considering a consumer proposal or personal bankruptcy debt restructuring plan you have two options when it comes to secured mortgages or loans. If you want to retain possession of the property or asset you pledged as collateral, usually a residence or motor vehicle, then you must:
1. continue to make the mortgage or vehicle loan payments; or
2. if you want to surrender the property or asset you pledged as collateral you stop making the mortgage or loan payments. The lender will sell the collateral and any shortfall owing becomes an unsecured debt that is included in your consumer proposal or personal bankruptcy debt restructuring plan.
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