Mortgage and Car Loan Debt

Understanding Mortgage and Car Loan Debt

In the world of finance, dealing with Mortgage and Car Loan Debt can be a challenging task. Especially when your home or vehicle is at stake, it becomes even more stressful. This article aims to shed light on the intricacies of such debts and provide practical solutions to navigate through them.

Understanding the Basics

Secured and Unsecured Debts

Before diving into the details of mortgage and car loan debts, it’s important to understand the difference between secured and unsecured debts.


Secured Debt: This type of debt is backed by an asset or collateral. Examples include mortgages and car loans. In case of a default, the lender has the right to repossess the asset to recover the loan amount.

Unsecured Debt: Unlike secured debts, these are not backed by any collateral. Examples include credit card debts, personal loans, and payday loans.


Note: The key difference between the two lies in the presence or absence of collateral.


What Happens When You Can’t Afford Your Mortgage or Car Loan Debt?

If you find yourself in a situation where you’re unable to make payments towards your mortgage or car loan, it’s crucial to communicate with your lender. They may be able to provide temporary relief by altering your payment schedule.

Additionally, a Licensed Insolvency Trustee (LIT) can provide a comprehensive debt assessment, giving you a clearer picture of your financial status. Reducing unsecured debt through methods like debt consolidation, debt management, or debt forgiveness programs might make your mortgage or car loan payments more affordable.

Dealing with Mortgage and Car Loan Debt in Consumer Proposals or Bankruptcy

While struggling with Mortgage and Car Loan Debt, you might wonder if these can be included in a consumer proposal or bankruptcy. Here’s what you need to know:


Consumer Proposals: These can help alleviate the pressure of unmanageable debt. However, only unsecured loans that aren’t backed by an asset can be included.

Bankruptcy: In most cases, people who declare bankruptcy can keep their home and vehicle.

Click here for a full list of exemptions.

Negative Equity: When Your Asset is Worth Less Than Your Loan

In some cases, the asset (home or vehicle) financed through a loan may depreciate in value and become worth less than the loan itself. This situation is referred to as being “underwater” or having “negative equity.”

While this is less likely with homes due to rising prices, it’s quite common with vehicles. In such a situation, you have the option to relinquish the asset. However, the lender may attempt to recover the shortfall on the loan. This shortfall can be treated as any other unsecured debt and may be included in a consumer proposal or bankruptcy.


In conclusion, dealing with Mortgage and Car Loan Debt can be daunting, but understanding the nuances can help you make informed decisions. Always remember to communicate with your lender and explore all available options.

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