When your mortgage or car loan is in trouble, what can you do?
Dealing with any type of debt problem is never easy, but it can be especially stressful when your home or your vehicle is part of the equation.
Understanding how mortgage and car loan debt works is the first step toward finding a solution.
Mortgages and car loans are two types of secured debt, which means they are backed or guaranteed by the asset being financed. In case of a default, the lender has the right to repay the loan by repossessing the house or the vehicle.
Unsecured loans aren’t back by any collateral. Some examples of unsecured debts are:
1. Contact your lender
If you’re having any type of financial difficulty, explain your situation to your lender first. They may be able to help by temporarily changing your payment schedule.
2. Talk to an LIT
A Licensed Insolvency Trustee (LIT) can provide a full debt assessment and give you a clearer picture of your overall financial health.
3. Explore debt relief options
You may be able to afford your mortgage or car loan payments by reducing unsecured debt. Options include debt consolidation, debt management, or debt forgiveness programs.
Are you struggling with other types of debt? A consumer proposal can alleviate the pressure of unmanageable debt. However, only unsecured loans, which aren’t backed by an asset, can be included.
In most cases, people who declare bankruptcy can also keep their vehicle and their home. Click here for a full list of exemptions.
When it comes to car loans, vehicles depreciate quickly, and are sometimes worth less than the loan used to finance them. This is what is meant by the term, “underwater,” or “negative equity.”
The same can happen with a home, although with rising home prices, it is less likely. However, if your home or vehicle has negative equity, you can walk away from the asset. The lender may pursue you to collect any shortfall on the loan, but this can be treated as any other debt and may be included in a consumer proposal or bankruptcy.
If you have taken on too much car loan debt, here are 7 things you to need to know to help you decide if you want to keep or get rid of your vehicle.
By filing a consumer proposal, you can reduce your debt by up to 80% while protecting all your assets. Read this real-life debt story about a couple who were struggling with mortgage payments and manage to keep their home by filing a consumer proposal.
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