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Furniture as security

January 18, 2018

We sometimes get asked: if furniture can be used as security for debts; and, if the debtor goes bankrupt does the creditor have a right to pick up the stuff? The answer, generally, depends on the nature of the loan and if or not the creditor took the steps necessary to register a security interest.

If the furniture was pledged as security for a loan other than the purchase of the items the answer is that the creditor’s rights are usually terminated upon the filing of a bankruptcy. However, if the creditor advanced money (or credit) specifically for the purchase of the furniture the creditor may have preserved its rights.

This is how the PPSA (Personal Property Security Act) reads on the topic:

Possession upon default

62 (1) Upon default under a security agreement,

(a) the secured party has, unless otherwise agreed, the right to take possession of the collateral by any method permitted by law;

(b) if the collateral is equipment and the security interest has been perfected by registration, the secured party may, in a reasonable manner, render such equipment unusable without removal thereof from the debtor’s premises, and the secured party shall thereupon be deemed to have taken possession of such equipment; and

(c) the secured party may dispose of collateral on the debtor’s premises in accordance with section 63.  R.S.O. 1990, c. P.10, s. 62.

Exempt collateral

(2) If any of the collateral in which the secured party has a security interest under the security agreement, other than a purchase-money security interest or a possessory security interest, is property that would be exempt under the Execution Act from seizure under a writ issued out of a court, that property is exempt from the rights of the secured party under subsection (1).  2006, c. 34, Sched. E, s. 20.