Difference Between Secured and Unsecured Debt

Thursday, November 21, 2019 - 14:16


Most consumer debt can be classified into two types, secured and unsecured. This can be useful to know what type your debt is when you are considering bankruptcy. 

'Secured creditors' are those that hold assets as collateral for their loans (like your car lease). 'Unsecured creditors' are those who do not have any collateral/security for their loans (like credit cards).

If you file personal bankruptcy you are dealing with your unsecured creditors, but filing personal bankruptcy does not affect the rights of secured creditors.

Unsecured Debt

Credit cards, payday loans, past utility bills are some of the debt that falls under the unsecured category. 

If most of your debt is unsecured debt, bankruptcy may be the best option for you. With bankruptcy, your qualifying unsecured debt can be wiped away and you will have no more legal obligation to make these payments.

Secured Debt

Vehicle payments are one of the most common types of secured debt in Canada. Most of us like having easy access to reliable transportation whenever we want it. Usually written in the vehicle loan contract, if you are late on a single payment, the lender has the right to take possession of the car. It usually doesn’t happen this fast, and the lender would prefer you pay the full amount of the vehicle plus any interest. 

The reality is, secured creditors don’t want to repossess your vehicle. They know if they repossess your vehicle that they will likely take a significant loss. They would far rather continue to receive payments and collect the full amount owing on their loan including interest. Therefore provided that you are current with your payments and can afford to continue making payments there shouldn’t be any problem with you keeping your financed vehicle even if you file personal bankruptcy.

If you’re considering bankruptcy, but have questions about your types of debt, contact our office today. We provide free, no-obligation consultations and are open late and on weekends to meet your needs. 

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