When someone is experiencing financial difficulty, it is important that they understand the different types of creditors they have in order for them to properly assess the various options that are available to them to solve their problem. The purpose of this entry is to provide basic information relating to the various types of creditors a person may have.
A “creditor” is a person or company that you (a debtor) owe money to.
There are two major classes of creditors – secured and unsecured. Each of these classes is made up of a number of subclasses.
A secured creditor is a person or company that holds a right or claim against the debtor’s property – this can be referred to as a mortgage, hypothec, pledge, charge, or lien on the property. It is important to understand that by their very nature, they may have a right to the items listed as their security. There are a number of different ways to register security in Ontario, including, but not limited to, the Land Registry for real property such as a house, the Personal Property Security Act (PPSA) for personal property such as vehicles and household goods, and Repair and Storage Lien Act (RSLA) for personal items that have been repaired, such as vehicles, or placed in storage.
Unsecured creditors may be able to register an execution or judgment against an asset, but usually these registration can be removed once the debtor has been discharged from personal bankruptcy or upon completion of their consumer proposal.
An unsecured creditor is a person or company that does not have a direct claim on the debtor’s property. There are 3 types of unsecured creditors defined by the Bankruptcy & Insolvency Act – preferred, deferred, and ordinary. Most unsecured creditors fall into the ordinary subgroup.
Deferred creditors are persons or companies that are not entitled to receive any money from a trustee administering a personal bankruptcy or consumer proposal until all of the other creditors have been paid in full. Family members and other related parties often are classified as deferred creditors.
A preferred creditor is one that has a claim or a partial claim that is entitled to receive a dividend before any of the other unsecured creditors in a personal bankruptcy or a consumer proposal. Some examples of preferred claims are employee wages, traveling salespersons expense accounts and court order support agreements.
If a debt does not fall into the deferred or preferred subclasses then it is deemed to be an ordinary unsecured creditor. These debts include things like credit cards, bank loans, income taxes, etc.
To discuss your personal situation in greater detail or if you have any questions about this topic, please contact Hoyes, Michalos & Associates Inc. at 310-PLAN or via e-mail.