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October 2006 - Collateral Damage

Collateral Damage

☳ by Adam Aspilla

Financial institution particularly secondary lenders like finance companies usually require their applicants for loan to use their household items as collateral for the amount of a loan. They make it simple by asking the applicant to tell them the household appliances and furniture the applicant has. Then, those items mentioned become the security of the amount borrowed. In the event the applicant defaults his/her payments, the lender could seize the items used as collateral.


Many loan applicants who are badly in need of money, in their desire to get loan approval are tempted to mention items even if they do not have them. Providing false information to induce a lender to approve a loan application is a misrepresentation or a maybe a fraud.


Case in point was a man who filed for bankruptcy where he listed a secured creditor using a T.V. with a specific brand as collateral. When the creditor asked for the T.V. the man could not produce it for at the outset, he did not really own said T.V., he just mentioned it to the lender so his loan would be approved.


As a consequence of his misrepresentation, the secured creditor opposed his discharge of bankruptcy and possibly to file a fraud case against him.


Misrepresentation may help you secure a loan without any hassle, for as long as you are up to date on your monthly payments. However, when you default your payment and you file for bankruptcy or consumer proposal you would be in trouble, for the creditor has the right to take the collateral item(s) from you.


In applying for a loan, it is essential that you would be truthful of your information. Do not use items like furniture and appliances as collateral if you do have it or own it. You should not solve your financial problem through misrepresentation and create a much greater problem down the road as in the above case scenario. 


Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.