A creditor is an individual, a business, or a financial institution that lends money to another party referred to as the “debtor“.

Creditors have the right to be repaid the loaned amount (called “principal”) in addition to the interest they set out in the loan agreement. A creditor can also be entitled to additional amounts to cover legal fees, for instance, if the borrower does not meet their obligations as specified in the loan contract. Depending on the type of loan granted, creditors can have various legal remedies if the debtor fails to fulfill their obligations.

Legal remedies if the debtor does not meet their obligations:

  1. Legal proceedings to obtain a judgment.
  2. If a judgment is granted, the seizure of all your assets (that can be seized) and/or wages.
  3. Recovery of possession of the asset if it’s held as collateral for the loan.

Creditors can also be classified based on the type of debt:

  • Secured creditors: They have a legal claim over a specific asset (collateral) if the debtor fails to meet the repayment terms. For instance, a mortgage lender is a secured creditor because if the borrower defaults, the lender can take possession of the property through foreclosure proceedings. The same applies to a car loan or a lease agreement.
  • Unsecured creditors: They extend credit without taking collateral. If the borrower defaults, these creditors don’t have a specific claim on any particular asset but on all of the debtor’s assets if they obtain a judgement. Common examples include financial institutions for credit card debts or personal loans.

Consumer Proposals and Bankruptcy
In a legal context, especially during bankruptcy proceedings, the rights and priorities of different types of creditors must be considered. The debt of an unsecured creditor will be (exceptions exist in the Bankruptcy and Insolvency Act) discharged (i.e. erased) after a consumer proposal or bankruptcy. In contrast, a debt that is secured will only be so if the borrower returns the collateral asset when filing their proposal or bankruptcy.