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Secured Creditors

September 5, 2017

A few notes on secured creditors

There are a variety of secured creditors from furniture and car loans to mortgage loans and investment loans. In each of these cases there are two facets to a valid security agreement, attachment and perfection. “Attachment” means that the debtor granted the lender the right to attach to their property (whatever type of property that may be) and “perfection” means that the creditor properly registered their interest in the security with the appropriate registry or they have possession of the security (car, furniture or whatever).

Generally, moveable property, or chattels, such as cars or furniture, are registered under the PPSA (Personal Property Security Act) while real estate is registered at the Land Titles Office. If you have provided attachment, authorized the taking of your property as security, but the creditor has not perfected their interest by registration the security may not be valid against the trustee in bankruptcy, but it may still stand under a proposal.

For example:

If a debtor had a loan for a used car and granted the creditor a right to secure their interest under the PPSA but the creditor did not do prior to the date of the debtor’s bankruptcy the asset may vest in your trustee and the debtor may be required to make a settlement for its market value, if the debtor wants to keep the car. If the creditor did perfect its security interest, then the debtor would be required to continue making payments in spite of the bankruptcy if s/he wanted to keep the vehicle.

Should the debtor file a proposal, however, the offering is only made to unsecured creditors and since the debtor’s assets do not vest in the trustee the trustee takes no interest in the secured assets. Nonetheless, the creditor can relinquish its interest in the asset by allowing the debtor to keep it or it may sell the asset and prove an unsecured claim for the remainder balance of the loan as unsecured.