If the creditor has my property as a collateral and/or security (form of charge or otherwise), do they have to auction off the property (realized the value of the property first to deduct against my debt) or they can sue me anyway without resorting to the above?
A creditor has to dispose any assets pledged by you first before proceeding to sue you for bankruptcy. In short, the creditor can maintain the hold the assets without disposing it to realize its market value and to deduct from the sales proceed against the debt owed and sue you for bankruptcy.
Sometimes, the assets sold at market value may even obtained a value higher than the debt owed which means you should receive the difference from the creditor after the sale.
In relation to property, the banks have to dispose of the assets via application to court for an auction in order to obtain market value for the property. It is an important obligations by the banks to ensure that the property sold fetched the highest value possible so as not to prejudice the debtor otherwise the debtor will have a good cause of action against the said bank for breach of such duty.
In furtherance to the above, it is essential to note that there has been situation whereby banks and/or banks officials sold assets pledged by debtors below market value or to related parties for individual gains and such has cause concerned to the public though such cases are no longer so apparent nowadays.
After the case popularly known as the Kimlin Housing case, it is widely accepted that all properties pledged and after default by the debtor, the creditor has to apply to court and obtain relevant independent valuation before disposing the assets via auction in order to mitigate the losses to be suffered by the debtor. Though, admittedly, such steps may be very tedious and time consuming and may take the bank a longer time to ‘clear off’ any bad debts in the accounts books.