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Secured Loan

I recently found out a loan I obtained through Citifinancial is secured. When I got the loan they asked me for a list of possessions equalling the amount of the loan. I did my best to list some items, however, to be honest, we don’t own anything of value – even our furniture is all second hand. My question is – if I declare bankruptcy, what will happen to this loan? Will they take the items on the list to sell (the list is pretty vague)?

2 Responses to “Secured Loan”

Barton Goth, GCO Inc. Bankruptcy Trustees said...

Technically a secured creditor operates outside of the Bankruptcy & Insolvency Act. However, the filing of a proposal or a bankruptcy is technically considered an “act of default” and gives the secured lender the ability to terminate the contract and seize the vehicle should they choose, this is an ability that they would prefer not to exercise (as selfishly they will make more money on the contract if they allow you to pay it till full term) and normally, as long as the payments are up to date, secured lenders are please to see someone continue paying the loan as originally contracted.

As each lender across the country has different internal practices I suggest contacting a licensed trustee to go over all the details in your current situation and they will be able to help you determine if keeping the 5th wheel is feasible.

Barton Goth, GCO Inc. Bankruptcy Trustees said...

A secured loan largely operates outside of the Bankruptcy and Insolvency Act. If you have pledged assets as security, the only way is to make arrangements to satisfy the secured lender. Failure to do so results in that lenders ability to seize the assets pledged.

As a result, the only way you are guaranteed to be able to keep these pledged items is to ensure the payments to Citifinancial are made in full. However, in practice I have found that organizations like Citifinancial are rarely interested in seizing of this nature, they are as aware of the limited value as you are, but they use it to encourage as many payments as can to be made. You can always try to negotiate with Citifinancial, but to effectively negotiate you must be willing to return the property if it comes to that. I always suggest you make an offer, pick a dollar value that you believe the furnishings are worth to you and the simply explain to Citifinancial that the property is not worth near what they are claiming, but for X dollars you would be willing settle things (i.e. you keep the property, they write down the loan). At the end of the day you have to realize that Citifinacial has a great deal of expense that will be required to seize and sell these household goods, something they don’t want to do, so typically we find organizations like Citifinancial are simply not interested in the property and will often settle for a significantly lower dollar value.

Also, keep in mind that if you do this prior to filing a bankruptcy (or shortly there after) if they do seize the assets, the remaining balance of the debt is now considered unsecured and you will be cleared from it in a bankruptcy.