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Secured Debts

If a person borrows money to buy goods, and gives the lender security over those goods, the debt owed to the lender is a secured debt or consumer mortgage. It is often a term of the consumer mortgage that the loan will be in "default" if the person is made bankrupt. Default entitles the lender to seize and sell the goods to recover the debt (see consumer credit).

A lender may agree that a bankrupt can keep goods over which security is held during the course of the bankruptcy, as long as payments are being maintained. This of course depends on whether or not the trustee also agrees, particularly if there is significant equity in the goods.

Certain goods are exempt from seizure by the trustee under the Bankruptcy Act 1966 (Cth). This means that the goods are not available to sell by the trustee to repay creditors. Such goods are household items, cars under a certain value and tools of trade under a certain value. Any other goods are available to the trustee to take, even if the goods are subject to security in favour of a lender.

If goods are paid for in full during the period of bankruptcy (whether the payments are made by the bankrupt or by a family member or friend), and are not exempt (ie not household goods or motor vehicles valued under the threshold amounts which can be found here) the trustee can seize the property and sell it to pay creditors.

Secured Debts  :  Last Revised: Fri May 9th 2014
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.