The Difference Between Secured and Unsecured Debt

The Difference Between Secured and Unsecured Debt

Understanding the Contrast: Secured and Unsecured Debt

Understanding the financial lingo can be a daunting task for many. One such area that often confuses consumers is the distinction between secured and unsecured debts. While these terms may sound intimidating, they are essentially categories of debt that are defined by how they are backed, or “secured.”

The Secured Debt

What Does It Mean?

Secured debts are those that are attached to an asset, like a house or a car. The asset serves as collateral for the loan. In simple terms, if you can’t pay back your loan, the lender has the right to seize the asset.

Examples of Secured Debts

Typical examples of secured debts include mortgages, auto loans, and investment loans. These loans are secured against the value of the asset you purchase with the loan.

The Role of Co-signers

Sometimes, lenders also use co-signers to secure loans. If you fail to make your payments, the co-signer will be asked to make the rest of the payments or pay off the loan in entirety.

Secured Debts and Bankruptcy

In situations like personal bankruptcy or consumer proposal filing, secured debts are usually not affected. You can keep the assets as long as you continue making the loan payments. This basically means that bankruptcy doesn’t necessarily mean losing your house.

Unsecured Debt

What Does It Mean?

On the other side of the coin, we have unsecured debts. These are loans that are not backed by any assets. Instead, they are given based on your creditworthiness.

Examples of Unsecured Debts

Unsecured debts include personal loans, credit cards, overdrafts, and outstanding income taxes. These are based on your credit score or other lending criteria.

Unsecured Debts and Bankruptcy

In the event of a personal bankruptcy or consumer proposal, all unsecured creditors are included. They can share in any proceeds from the bankruptcy or proposal.

Deciding Between Secured and Unsecured Debt

The type of debt you choose depends on your situation. Are you looking to make a big purchase like a home or a car? A secured loan might be your best bet. On the other hand, if you’re looking for a smaller loan or a credit card, an unsecured loan could be the way to go.

Not sure which debts can be included in a bankruptcy or consumer proposal? Check out this detailed guide on which debts are released by different debt solutions.

Final Thoughts

Understanding the difference between secured and unsecured debt is crucial for making informed financial decisions. At Bankruptcy Canada, we are committed to helping you navigate these complex financial landscapes. As a Licensed Insolvency Trustee, we offer a range of services to help you overcome financial stress.


  • We provide personalized solutions, not one-size-fits-all treatments.
  • We pride ourselves on our responsive and experienced team.


We will guide you through different debt solution options, including personal bankruptcy and consumer proposals.

If you’re struggling with debt, don’t hesitate to reach out. We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in various locations.

Remember, understanding the difference between secured and unsecured debt is the first step towards financial freedom.

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