A secured creditor is a person or business
that loaned you money with the condition that if you failed to repay
the debt they had a right to one (or some) of your possessions.
Loans secured in this way are known as secured debts. Some examples of secured creditors would be:
The most important thing to understand about secured creditors is that secured debts are not included in your bankruptcy proceedings. The Bankruptcy and Insolvency Act only pertains to unsecured debts.
If you have any secured debts at the time you file bankruptcy, you will still be required to make payments towards those debts up to the fair market value of the items they hold as security. This point is often confusing, so let's try an example:
"Acme Finance Co. loaned you $5,000 to consolidate your bills and secured their debt by registering a "lien" on your car. ( A "lien" is the technical term for pledging your car as security for a loan.) Two years later you file bankruptcy. You still owe Acme $3,500, but your car is only worth $1,500".
When you file bankruptcy, Acme will be required to prove to your trustee that they have a valid claim and that it ranks in priority to any other claims on your car. If they do, your trustee will "release" the car to Acme. (By "releasing" you car to Acme, the trustee is saying that Acme has a legal right to your car should you fail to make your payments.)
Acme will then request one of the following:
In our example, we could have used a boat,
furniture, savings bonds, even your house.
If you pledged an item
as security to obtain credit and you file personal bankruptcy in Ontario, your secured creditors are entitled to the fair market value of the item or the item itself.