A creditor is the one who gives credit or a loan, whereas a debtor is the one who lends from the creditor. Creditors generally are of two types – Secured creditors and unsecured creditors. Secured creditors are those who hold a mortgage or a lien against the debtors assets. They also hold a collateral from the debtor as a security for the repayment of the debt. Unsecured creditors are those who do not hold any mortgage or collateral but he initiates court proceedings and takes back his loan through the court. It means, the debtor who owns money has to pay to the court once the court passes the judgment. This way, unsecured creditor collects the debt owed through the court hearings and proceedings. Any transaction whether it is by a secured creditor or unsecured creditor is followed by a security agreement between the creditor and debtor.
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Rights and remedies available to creditors – As per PPSA (Personal Property Security act) When a debtor defaults on the loan, the rights and remedies the creditor has against the debtor is always provided in the security agreement. In case of the secured creditor, the creditor may choose to take the possession of the collateral which is mentioned in the security agreement, and disposing off the collateral and then sue for the remaining amount which he still owes. It means, the secured party has the right to seize in case of a secured loan transaction or to repossess the collateral in case of a secured credit sales transaction as per sections 59(2), 59(3) and section 58.
In case of unsecured creditors, legal proceedings are initiated by the creditor which permits the creditor to obtain a judgment from the court to collect the debt owed. In case, the debtor has no assets, or if the debtor files a bankruptcy then the creditor may be prevented from initiating the proceedings against the debtor. In that case, any goods, chattels, money, bank notes, cheques, shares and securities are seized. If a debtor has assets but he declares himself bankrupt, then his assets are seized. In the other cases, Registered Retirement Savings Plans (RRSP) in the form of delayed annuities could satisfy the requirements as per section 54(2) of the Insurance act.
Rights and Remedies available to Debtors – When a debtor is in default under security agreement, Section 56 of the Personal Property and Security Act (PPSA) then the rights and remedies of the debtors should not be derogated. In that case, seizing and disposing the collateral from the debtor can happen. The sections 58 and 59 contains the rules for seizing and disposing the collateral. Unless the security agreement states, creditor may choose to take the possession of the collateral from the debtor who defaults on the payments. In Section 67, collateral takes the form of consumer goods where the creditor can either seize or sue but cannot do both. If the debtor has paid at least two-thirds of the total amount, then the creditor can not seize the collateral or good without the court order. Also, debt collectors should not harass the debtor without the court order on garnishment of the payment due. In case of any misconduct by the debt collector, Debtors can report that immediately to the Business practices and Consumer Protection Act, and the license of the collector shall be canceled. Debtors also get assistance from certain referrels and non-profit agencies whose purpose is to help the debtors by counseling by the credit counselors on their financial debts.