Many think that on a delinquent debt, a lender could only seize properties used as collateral like: car, household items and real estate. That is not true, because a lender could attach even your home on your delinquent unsecure debt like credit cards and personal loans.
While a secure lender could easily seize items used for collateral on a loan especially chattel (movable properties) as it does not usually require a court order. Unlike on a loan where a real estate is used as collateral, a legal process called “power of sale” is required before a lender could take over a real estate property.
A good example was a couple who jointly owned a house. She and her husband had outstanding unsecure debts of about sixty thousand dollars in credit cards. Her husband lost his good paying job and work for a new company with a much smaller income. As a consequence, they defaulted their payments on credit cards. But their mortgage payments were up to date as they don’t want the bank would attach their house.
They felt comfortable not paying or making payment arrangement with their unsecured debts thinking that the creditors could not do any harm as they are unsecured creditors. It did not take long they were sued and the unsecured creditors obtained judgment from the court ordering them to pay their outstanding debts from their unsecured creditors.
The judgment creditors moved to execute the judgment and their house with sufficient equity to pay secured and unsecured creditors was attached by their unsecured creditors which they thought could not do any harm.
If you are in financial bind it is alright to pay first the secure creditors and the unsecure next. When you have negative cash flow you have to communicate to your unsecure creditors of your financial circumstance to make payment arrangement or to request suspension of payment for few months. Do not ignore them as what the above couple did.
Just because creditors are not secured do not mean they do not have the legal right to attach your personal and real estate properties – they could even attach your home.
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.