What Is Secured Debt?
Secured debt is any loan or credit that is backed by collateral — a physical asset the lender holds a legal claim over until the debt is repaid.
If you stop making payments on a secured debt, the lender has the right to seize that asset and sell it to recover what you owe. That is the security.
Common examples of secured debt in Canada:
- Mortgage (secured by your home)
- Car loan or lease (secured by the vehicle)
- Home equity line of credit (secured by home equity)
- Some business equipment loans (secured by the equipment)
What Is Unsecured Debt?
Unsecured debt is money you owe that is not backed by any asset. If you stop paying, the lender cannot automatically seize anything. To collect, they must pursue you through the court system — which takes time, costs money, and is subject to legal limitations.
Common examples of unsecured debt in Canada:
- Credit card balances
- Personal loans and unsecured lines of credit
- Payday loans
- Medical bills
- Most student loans
- Income tax debt owed to the CRA
- Utility arrears
- Unpaid rent (in many cases)
Key Differences at a Glance
| Secured Debt | Unsecured Debt | |
|---|---|---|
| Backed by collateral? | Yes | No |
| Can creditor seize an asset directly? | Yes | No — must go through court |
| Typically higher or lower interest rate? | Lower (less risk for lender) | Higher (more risk for lender) |
| Eligible for Consumer Proposal? | Generally no | Yes |
| Eligible for debt settlement? | Rarely | Yes |
Why the Distinction Matters for Debt Relief
Most legal debt relief options in Canada — including Consumer Proposals and debt settlement — apply to unsecured debt. Understanding which of your debts are unsecured tells you how much of your total debt load is actually eligible for reduction.
For example: if you have a $200,000 mortgage, a $15,000 car loan, and $60,000 in credit card and personal loan debt, your mortgage and car loan are generally outside the scope of debt relief. Your $60,000 in unsecured debt is what a legal process can address.
This is important because many people look at their total debt load and feel overwhelmed — but their unsecured debt, which is the debt with the most flexibility, may be a fraction of the total.
What Happens to Secured Debt in a Consumer Proposal?
A Consumer Proposal deals with your unsecured creditors. Your secured creditors — like your mortgage lender or car financing company — are not included. You continue making those payments as normal.
This is actually one of the advantages of a Consumer Proposal over bankruptcy: you can typically keep your home and your car as long as you stay current on those secured payments. The proposal addresses only the unsecured debt that has been dragging you under.
Can Any Secured Debt Be Included in Debt Relief?
In some cases, yes — but it is complicated. If you are prepared to surrender the secured asset (for example, walk away from a vehicle you can no longer afford), the shortfall remaining after the asset is sold may become an unsecured debt and could be included in a proposal or settlement.
There are also situations where a secured creditor agrees to renegotiate terms — particularly in business debt restructuring. These cases require legal analysis of each debt and each creditor.
Our debt settlement service and our broader overview of debt relief options can give you a clearer picture of what is possible in your specific situation.
Which Debts Cannot Be Eliminated in Canada?
Even within unsecured debt, some obligations are exempt from discharge in insolvency proceedings. These include:
- Child support and spousal support arrears
- Court-ordered fines and restitution
- Debts arising from fraud
- Student loans (if you have been out of school for fewer than seven years)
Understanding what is and is not eligible is one of the first things we assess when you come in for a consultation.
Not Sure Which of Your Debts Qualify for Relief?
We will walk you through your full debt picture — secured, unsecured, and everything in between — and tell you exactly what legal options are available to you. Free and confidential.
Frequently Asked Questions
Is a mortgage considered secured or unsecured debt?
A mortgage is secured debt. Your home is the collateral — if you stop making payments, the lender can begin foreclosure proceedings to recover the property. Mortgages are generally not included in Consumer Proposals or debt settlement.
Can secured debt be included in a Consumer Proposal?
Generally no. A Consumer Proposal addresses unsecured creditors. Secured creditors are not bound by the proposal, and you must continue making your secured payments to keep the associated asset. There are some limited exceptions where a secured creditor agrees to participate, but this requires individual negotiation.
What types of debt are considered unsecured?
Credit cards, personal loans, unsecured lines of credit, payday loans, income tax debt, and most utility arrears are all unsecured. These are the debts with no collateral behind them and the ones most eligible for legal debt reduction through a Consumer Proposal or settlement.
What happens to my mortgage if I file a Consumer Proposal?
Your mortgage is not included in the proposal. As long as you continue making your mortgage payments, your lender is generally not affected by the Consumer Proposal process. Many people complete a Consumer Proposal while staying in their home and keeping their car.
Is CRA (income tax) debt secured or unsecured?
CRA debt is generally treated as unsecured for the purposes of a Consumer Proposal and can be included in a proposal along with other unsecured creditors. However, the CRA has special collection powers compared to most creditors — including the ability to garnish wages and freeze bank accounts without a court order — which is why CRA debt often demands more urgent attention.
