What is a secured creditor?
A secured creditor is a creditor (lender) to whom you’ve pledged an asset as collateral or security in order to obtain credit. Mortgages and car loans are the most common examples—when you accept a loan from a lender in order to purchase a home or car, the home or car automatically becomes collateral against the loan.
If a borrower does not make all required payments on a secured credit loan, known as a default, the secured creditor has a legal right to the asset used as collateral. This means they can seize and sell the asset in order to meet your remaining debt obligations. Secured creditors do not lose their right to an asset if you go bankrupt or make a proposal.
In a bankruptcy and consumer proposal, should you wish to keep the asset you pledged as collateral, you must continue to pay the secured creditor. Creditors will allow you to keep the asset, but only if your payments are up to date when you file your bankruptcy or proposal. Find more information on exactly what assets you can keep in bankruptcy on our website.
This is a quite complex area—if you have questions about secured creditors in relation to your own financial situation, you should meet with a Grant Thornton debt professional for a free, no-obligation consultation.
What’s the difference between secured and unsecured debt?
There are two types of consumer debt: secured debt and unsecured debt.
Secured debt is provided by a secured creditor, as we detailed above. The asset you purchased with a loan such as a home or a car becomes collateral or security to the lender.
Unsecured debt, on the other hand, is provided by a lender to a consumer without any collateral or security to back it. The typical example of an unsecured debt is credit card . Oftentimes, unsecured debt comes with a higher rate of interest than secured debt. For example, a credit card can often come with an annual interest rate in excess of 18%.