What is Secured Debt?

What is secured debt?

Secured debt is a type of loan that is connected to an asset you own. For example, a mortgage is backed by your home, and an auto loan is backed by your car. If you fail to make payments, the lender has the right to take possession of the asset and sell it in order to recover the money you owe.

Lenders prefer secured loans because they have a strong chance of getting their money back. Properties and vehicles sell quickly, and that reduces the lender’s risk.

Unsecured debt has no asset backing it. Credit cards and personal loans are examples of unsecured debt. If you stop paying an unsecured debt, the lender must take legal action to recover the money. They can’t seize your belongings without a court order.

How secured loans work

When you take out a secured loan, you agree to use an asset as collateral. The lender registers a lien against that asset, which gives them the legal right to seize it if you default.

Your interest rate depends on your credit history and income. Lower credit scores mean higher interest rates because lenders see you as a higher risk.

If you miss payments, late fees and charges pile up. Eventually, the lender can start repossession proceedings. For a mortgage, that means foreclosure. For a car loan, it means repossession.

Common types of secured debt

Mortgages

A mortgage is the most common secured debt in Canada. Your home backs the loan. If you stop paying, the lender forecloses on your property and sells it.

In August 2025, residential mortgage debt reached $2.3 trillion. That is an increase of 4.8% from the previous year.

Source: CMHC – Residential Mortgage Industry Report Fall 2025 Edition

Car loans

Many Canadians need financing to buy a vehicle. Your car backs the loan, and if you fall behind on payments, the lender repossesses it.

Long-term financing is common. Seven-year loan terms mean more time to fall behind and more interest paid overall. Missing car loan payments also damages your credit rating, making future borrowing more expensive.

Rent-to-own agreements

Rent-to-own is an alternative for people who can’t get traditional mortgage financing. You rent a property with the option to buy it later, and part of your rent goes towards the purchase price.

If you can’t keep up with payments, you lose the entire investment. All the money you’ve paid in goes to the landlord. You don’t get it back.

Tax and government debt

The Canada Revenue Agency has strong collection powers. If you owe tax debt and don’t pay, the CRA can garnish your wages, seize investments, and freeze your bank accounts.

The CRA can also register a lien against your home. That lien works like secured debt. The CRA gets paid when you sell or refinance.

The difference between secured and unsecured debt

Secured debt is easier to qualify for because the lender can seize your asset if you don’t pay. That is particularly true for people with poor credit or those rebuilding after debt problems.

Unsecured debt includes credit cards, medical bills, and payday loans. Without collateral, the only way to reduce unsecured debt is to pay it down or negotiate with creditors. Lenders must go to court to collect unsecured debts.

The type of debt matters when you need debt relief. A consumer proposal handles unsecured debt but not secured debt. Your mortgage and car loan stay in place.

Feature	Secured debt	Unsecured debt
Collateral required	Yes (home, car, deposit)	No
Interest rates	Lower	Higher
Risk if you default	Asset seized	Legal action required
Examples	Mortgage, car loan, HELOC	Credit card, personal loan, payday loan
Included in a consumer proposal	No	Yes

Why people lose control of secured debt

Higher costs for riskier borrowers

The less you earn and the lower your credit rating, the more you pay in interest. Those higher costs make it harder to keep up with payments over time.

Rising interest rates

Variable rate mortgages reset when the Bank of Canada raises rates. Your monthly payment can jump by hundreds of dollars. Many Canadians borrowed at record low rates during the pandemic and now face payments they can’t afford.

Income loss or unexpected expenses

Job loss, medical emergencies, or family changes can wipe out your ability to pay. When you miss a payment, late fees add to what you owe. That makes catching up even harder.

Signs that secured debt is becoming a problem

Secured debt is becoming a problem if any of these apply to you.

Your mortgage lender is chasing you for payments. Missing what is likely your largest monthly bill is a clear sign of financial distress.

You’re cutting back on essentials. If you’re skipping groceries or utility bills to make your mortgage or car payment, the math has stopped working.

You’re borrowing to cover basic expenses. Running out of money before payday means you’re paying out more than you earn. That’s unsustainable.

You’re hiding your financial situation from your family. Secretive behaviour about money usually means you know things are worse than they should be.

You’re losing sleep over payments. Lying awake worrying about your next mortgage payment is a sign you need help.

Secured debt in consumer proposals and bankruptcy

A consumer proposal does not cover secured debt. Your mortgage, car loan, and any other secured obligations stay in place. You must keep making those payments to keep the asset.

What a consumer proposal does is reduce your unsecured debt. If you owe $30,000 on credit cards and $15,000 on a personal loan, a consumer proposal lets you repay a portion of that over up to five years. Your creditors forgive the rest.

That matters because reducing your unsecured debt frees up money for your secured payments. If you’re behind on your mortgage because credit card minimums are eating your income, eliminating that unsecured debt changes the picture.

In a bankruptcy, secured creditors still have first claim on their collateral. If you surrender the asset, any shortfall between the sale price and what you owed becomes unsecured debt. That shortfall is then included in the bankruptcy.

Frequently asked questions

Can I include my mortgage in a consumer proposal?

You can’t eliminate mortgage debt through a consumer proposal. Your mortgage stays in place, and you must keep making those payments to keep your home.

What happens if I stop paying my car loan?

The lender repossesses your vehicle and sells it to recover what you owe. If the sale price doesn’t cover your debt, you still owe the difference.

Is a line of credit secured or unsecured?

It depends. A home equity line of credit is secured by your home. A personal line of credit is unsecured. Check your loan agreement to know which type you have.

Can the CRA seize my house for tax debt?

The CRA can register a lien against your home. They can’t force you to sell, but they get paid when you do sell or refinance.

What’s the difference between a secured credit card and a regular credit card?

A secured credit card requires a cash deposit that backs the credit limit. If you don’t pay, the card issuer keeps the deposit. A regular credit card has no deposit and is unsecured.

Can I negotiate with a secured lender if I’m behind on payments?

Contact your lender before you fall too far behind. Many lenders offer hardship programmes that temporarily reduce payments or extend your loan term. They’d rather work with you than repossess your asset.

Does bankruptcy get rid of secured debt?

Bankruptcy does not eliminate secured debt. If you keep making payments, you keep the asset. If you surrender the asset, any shortfall between the sale price and what you owed becomes unsecured debt included in the bankruptcy.

What happens to my secured debt if interest rates keep rising?

Your payments increase if you have a variable rate loan or when your fixed term renews at a higher rate. If you can’t afford the new payments, talk to a Licensed Insolvency Trustee before you fall behind.

Need help with secured debt?

If secured debt is putting your home or car at risk, talk to a Licensed Insolvency Trustee. Most consultations are free. A trustee will review your situation and explain your options without judgment.