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Is the LOC from my Mom considered unsecured debt?

Last year my mother gave me use of her line of credit to purchase a new vehicle. Will this be considered unsecured debt and included in a consumer proposal? I pay a monthly amount to her for the vehicle just as if it was a car loan. I know that she can register the vehicle under the PPSA to ensure she gets her money or the vehicle back. Would you recommend that prior to consumer proposal and will that be enough to protect the asset?

Also, if you file for a consumer proposal, can your creditors force you into bankruptcy if you are not behind on any bills? I have a lot of debt and I make the payments every month but the debt just never gets smaller.

Posted from: Ontario

One Response to “Is the LOC from my Mom considered unsecured debt?”

Jillian Taylor-Mancusi, Trustee | B.A. | C.I.R.P said...

Essentially your mother lent you the money to buy the vehicle. This is an unsecured liability and would be treated as such if you file a Consumer Proposal. However, the car which has no security registered against it, is your asset. Depending upon the value of the car it may be an exempt asset and would be taken into consideration as such in determining whether your creditors voted for or against the Consumer Proposal. In a proposal your assets do not vest in the trustee and the proposal may be accepted by the creditors if they feel it is a better solution than a bankruptcy. If the Consumer Proposal is defeated bankruptcy is not automatic. In the event of a bankruptcy, if the car is not exempt because of its value, the car would be an asset of the estate. If your mother filed security under the PPSA at this late date it may be considered a preference under the Bankruptcy and Insolvency Act and her claim as a secured creditor may not be enforceable.

If you file a Consumer Proposal the creditors can vote on the proposal. If a majority of the creditors vote against the proposal the proposal is defeated. This means that you cannot file another proposal on the same debts. However, you are not automatically bankrupt at that point. While you can file an Assignment in bankruptcy your creditors cannot force you into bankruptcy without a court order. This is very unlikely given your circumstances.