How Should I Approach My Secured Creditors?
What is a Secured Creditor?
A secured creditor is a creditor to whom you have either given one of your assets as collateral to obtain a loan or mortgage or you needed a loan or mortgage to obtain the asset. For example, when you purchase a home, it is used as collateral for the mortgage. Or if you get a loan, the vehicle you own may be taken as collateral against the loan.
Often when you get a loan from a lendor such as Citifinancial, Household Finance or Trans Canada Credit, they will grant the loan but also take collateral on a vehicle, if you have one, and your household furnishings. But usually a purchase through a retail store like Future Shop, Soundsaround, etc, which is financed by one of these lenders, does not have collateral attached to it.
Secured creditors do not lose their right to a pledged asset if you go bankrupt or make a proposal. If you want to keep the asset you pledged as collateral, you must continue to pay the secured creditor even if you have filed bankruptcy or a proposal or have entered the Orderly Payment of Debt Program. Most creditors will allow you to continue paying, but only if your payments are up to date at the date you enter the program. Some secured creditors may seize the asset upon bankruptcy and neither you nor the Trustee can stop the seizure once the creditor has proved their claim with the trustee.
If you want to keep the asset but feel the monthly payment is too high, you can contact the creditor in an attempt to spread your payments over a longer period of time or to renegotiate a lower interest rate. A creditor will sometimes do this for a short period of time or possibly for the term of your contract.
If you have a secured asset you do not wish to keep it will usually be returned after the filing of the bankruptcy or proposal. Any deficiency or balance outstanding after the return of the asset will be included in your bankruptcy, proposal, or Orderly Payment of Debt Program.
Often when household furnishings are secured and the value of the furnishings is significantly less than the loan amount, the secured creditor may re-write the loan for the value of the assets. This decision is up to the lender, but if they agree, a debtor may sign a new loan document after bankruptcy and the balance written off will be discharged by the bankruptcy. Note that if you decide to retain financed assets and then decide later, after bankruptcy, that you would like to return the asset, any shortfall to the creditor may have to be repaid as a post bankruptcy debt. Also, no debtor should make arrangements to reaffirm a loan and retain an asset until the secured creditor has filed a claim with the trustee and the trustee has confirmed that the trustee has no interest in the asset.
If you are unsure whether a creditor has collateral against your assets you can do a Personal Property Registry search at any Canada registry office under either your full legal name or the serial number of the asset that you believe is secured. If the secured creditor's name appears on the personal property search, assume they have the asset as collateral.
As this is a complex area and very dependent on the actual agreement between the debtor and creditor, the jurisdiction in which it is made and the particular facts, debtors are cautioned to seek professional advice with regard to their particular situation.